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					FILED: NEW YORK COUNTY CLERK 12/07/2011                                        INDEX NO. 653383/2011
NYSCEF DOC. NO. 1                                                      RECEIVED NYSCEF: 12/07/2011




                       SUPREME COURT OF THE STATE OF NEW YORK
                                 NEW YORK COUNTY

            STICHTING PENSIOENFONDS ABP,

                                           Plaintiff,   Index No.

                              v.
                                                        SUMMONS
            JPMORGAN CHASE & CO.; JPMORGAN
            CHASE BANK N.A.; J.P. MORGAN                The basis of the venue is each of the
            MORTGAGE ACQUISITION CORP.; J.P.            defendants either resides in New York or
            MORGAN SECURITIES, LLC. f/k/a J.P.          conducts continuous and systematic
            MORGAN SECURITIES INC.; J.P. MORGAN         business in New York.
            ACCEPTANCE CORPORATION I; EMC               (CPLR §§ 301 & 302)
            MORTGAGE LLC f/k/a EMC MORTGAGE
            CORPORATION; BEAR STEARNS AND CO.
            INC.; BEAR STEARNS ASSET BACKED
            SECURITIES I LLC; STRUCTURED ASSET
            MORTGAGE INVESTMENTS II INC.; WAMU
            ASSET ACCEPTANCE CORP.; WASHINGTON
            MUTUAL MORTGAGE SECURITIES CORP.;
            WAMU CAPITAL CORP.; LONG BEACH
            SECURITIES CORP.; BANC OF AMERICA
            SECURITIES LLC; CREDIT SUISSE
            SECURITIES (USA) LLC; DAVID BECK;
            BRIAN BERNARD; RICHARD CAREAGA;
            THOMAS W. CASEY; CHRISTINE E. COLE;
            DAVID M. DUZYK; STEPHEN FORTUNATO;
            MICHAEL J. GIAMPAOLO; ROLLAND
            JURGENS; WILLIAM A. KING; EDWIN F.
            MCMICHAEL; LOUIS SCHIOPPO, JR.;
            KATHERINE GARNIEWSKI; THOMAS
            GREEN; JOSEPH T. JURKOWSKI, JR.;
            THOMAS LEHMANN; KIM LUTTHANS;
            THOMAS F. MARANO; JEFFREY MAYER;
            SAMUEL L. MOLINARO, JR.; MICHAEL B.
            NIERENBERG; DIANE NOVACK; MATTHEW
            E. PERKINS; JOHN F. ROBINSON; JEFFREY
            VERSCHLEISER; DONALD WILHELM;
            DAVID H. ZIELKE.

                                        Defendants.
    TO THE ABOVE-NAMED DEFENDANTS

J.P. Morgan Chase & Co.                    J.P. Morgan Chase Bank, N.A.
4001 Governor Printz Boulevard             1111 Polaris Parkway
Wilmington, Delaware 19802                 Columbus, Ohio 43240
J.P.Morgan Acquisition Corp.               J.P. Morgan Securities LLC
270 Park Avenue                            (f/k/a JPMorgan Securities Inc.)
New York, New York 10017                   227 Park Avenue
                                           New York, New York 10017
J.P. Morgan Acceptance Corporation I       EMC Mortgage LLC
270 Park Avenue                            (f/k/a EMC Mortgage Corporation)
New York, New York 10017                   2780 Lake Vista Drive
                                           Lewisville, Texas 75067
Bear Stearns & Co., Inc.                   Bear Stearns Asset Backed Securities I LLC.
383 Madison Avenue                         383 Madison Avenue
New York, New York 10179                   New York, New York 10179
Structured Asset Mortgage Investments II   WaMu Asset Acceptance Corp.
Inc.                                       1301 Second Avenue, WMC 3501A
383 Madison Avenue                         Seattle, Washington 98101
New York, New York 10179
Washington Mutual Mortgage Securities      WaMu Capital Corp.
Corp.                                      c/o CT Corporation System
c/o The Corporation Trust Company          1801 West Bay Drive NW, Suite 206
Corporation Trust Center                   Olympia, Washington 98502
1209 Orange Street
Wilmington, Delaware 19801
Long Beach Securities Corp.                Banc of America Securities LLC
c/o The Corporation Trust Company          c/o CT Corporation System
Corporation Trust Center                   150 Fayetteville Street
1209 Orange Street                         Raleigh, North Carolina 27601
Wilmington, Delaware 19801
Credit Suisse Securities (USA) LLC         David Beck
c/o Corporation Service Company            71 Whahackme Road
80 State Street                            New Cannan, CT 06840
Albany, New York 12207-2543
Brian Bernard                              Richard Careaga
c/o J.P. Morgan Acceptance Corporation I   7613 Portstewart Drive
270 Park Avenue                            Bradenton, Florida 34202
New York, New York 10017
Thomas W. Casey                            Christine Cole
401 100th Avenue NE, Apt 321               1042 Greenwood Avenue
Bellevue, Washington 98004                 Wilmette, IL 60091
David Duzyk                                Stephen Fortunato
1151 Delong Road
Lexington, KY 40515
Michael Giampaolo                   Rolland Jurgens




William A. King                     Edwin F. McMichael




Louis Schioppo, Jr.                 Katherine Garniewski
24 Forest Lake                      4602 Beechwold Avenue
Monroe Township, New Jersey 08831   Wilmington, Delaware 19803
Thomas Green                        Joseph T. Jukowski, Jr.
                                    315 W. 70th Street, Apt. 15B1
                                    New York, New York 10023


Thomas Lehmann                      Kim Lutthans
25660 North Countryside Drive
Barrington, Illinois 60010


Thomas F. Marano                    Jeffrey Mayer
15 Olde Greenhouse Lane
Madison, New Jersey 07940


Samuel L. Molinaro, Jr.             Michael B. Nierenberg
413 Ponus Ridge                     14 Plum Beach Point Road
New Canaan, CT 06840                Port Washington, NY 11050

Diane Novack                        Matthew E. Perkins
12051 Greenwood Avenue North
Seattle, Washington 98133


John F. Robinson                    Jeffrey L. Verschleiser
                                    President of Structured Asset Mortgage
                                    Investments (SAMI)
                                    944 5th Avenue, #3
                                    New York, New York 10021
Donald Wilhelm                      David H. Zielke
                                    First VP and Assistant General Counsel of
                                    Washington Mutual Mortgage Securities
                                    8610 NE 123rd Place
                                    Kirkland, Washington 98034
             SUPREME COURT OF THE STATE OF NEW YORK
                       NEW YORK COUNTY

STICHTING PENSIOENFONDS ABP,

                               Plaintiff,   Index No.

                  v.

JPMORGAN CHASE & CO.; JPMORGAN              COMPLAINT
CHASE BANK N.A.; J.P. MORGAN
MORTGAGE ACQUISITION CORP.; J.P.
MORGAN SECURITIES, LLC. f/k/a J.P.
MORGAN SECURITIES INC.; J.P. MORGAN         JURY TRIAL DEMANDED
ACCEPTANCE CORPORATION I; EMC
MORTGAGE LLC f/k/a EMC MORTGAGE
CORPORATION; BEAR STEARNS AND CO.
INC.; BEAR STEARNS ASSET BACKED
SECURITIES I LLC; STRUCTURED ASSET
MORTGAGE INVESTMENTS II INC.; WAMU
ASSET ACCEPTANCE CORP.; WASHINGTON
MUTUAL MORTGAGE SECURITIES CORP.;
WAMU CAPITAL CORP.; LONG BEACH
SECURITIES CORP.; BANC OF AMERICA
SECURITIES LLC; CREDIT SUISSE
SECURITIES (USA) LLC; DAVID BECK;
BRIAN BERNARD; RICHARD CAREAGA;
THOMAS W. CASEY; CHRISTINE E. COLE;
DAVID M. DUZYK; STEPHEN FORTUNATO;
MICHAEL J. GIAMPAOLO; ROLLAND
JURGENS; WILLIAM A. KING; EDWIN F.
MCMICHAEL; LOUIS SCHIOPPO, JR.;
KATHERINE GARNIEWSKI; THOMAS
GREEN; JOSEPH T. JURKOWSKI, JR.;
THOMAS LEHMANN; KIM LUTTHANS;
THOMAS F. MARANO; JEFFREY MAYER;
SAMUEL L. MOLINARO, JR.; MICHAEL B.
NIERENBERG; DIANE NOVACK; MATTHEW
E. PERKINS; JOHN F. ROBINSON; JEFFREY
VERSCHLEISER; DONALD WILHELM;
DAVID H. ZIELKE.

                            Defendants.
                                                    TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................... 1

SUMMARY OF ALLEGATIONS ................................................................................................. 2

JURISDICTION AND VENUE ..................................................................................................... 6

PARTIES ........................................................................................................................................ 7

           A.         PLAINTIFF ................................................................................................................ 7

           B.         DEFENDANTS ........................................................................................................... 7

                      1.         JPMorgan Corporate Entities...................................................................... 7

                      2.         JPMorgan Individual Defendants ............................................................... 9

                      3.         Bear Stearns Corporate Entities ................................................................ 10

                      4.         Bear Stearns Individual Defendants.......................................................... 12

                      5.         WaMu Corporate Entities ......................................................................... 15

                      6.         WaMu Individual Defendants................................................................... 17

                      7.         Other Underwriter Defendants.................................................................. 19

           C.         RELEVANT NON-PARTIES ...................................................................................... 20

                      1.         Issuing Trusts ............................................................................................ 20

                      2.         Third Party Originators ............................................................................. 22

SUBSTANTIVE ALLEGATIONS .............................................................................................. 23

I.         THE SECURITIZATION PROCESS GENERALLY...................................................... 23

II.        THE SECURITIZATIONS ASSOCIATED WITH THE PLAINTIFF’S
           CERTIFICATES AND ITS INVESTMENTS IN THE CERTIFICATES....................... 26

           A.         JPMORGAN TRUSTS ............................................................................................... 26

           B.         BEAR STEARNS TRUSTS ......................................................................................... 27

           C.         WAMU AND LONG BEACH TRUSTS ........................................................................ 28

III.       IMPORTANT FACTORS IN THE DECISION OF INVESTORS SUCH AS
           PLAINTIFF TO INVEST IN THE CERTIFICATES ...................................................... 33


                                                                        i
IV.   DEFENDANTS KNEW THAT A LARGE PERCENTAGE OF THE
      MORTGAGE LOANS UNDERLYING PLAINTIFF’S CERTIFICATES WERE
      MADE AS A RESULT OF THE SYSTEMATIC ABANDONMENT OF
      PRUDENT UNDERWRITING GUIDELINES AND APPRAISAL
      STANDARDS................................................................................................................... 38

      A.        DEFENDANT JPMORGAN CHASE ABANDONED UNDERWRITING STANDARDS
                AND APPRAISAL GUIDELINES IN ITS VERTICALLY INTEGRATED
                SECURITIZATION PROCESS ..................................................................................... 41

                1.         JPMorgan Chase Disregarded Underwriting Guidelines and
                           Appraisal Standards In Its Own Mortgage Lending Operations............... 42

                2.         JPMorgan Chase Management Was Aware That Third Party
                           Originators Were Abandoning Their Underwriting Guidelines and
                           Appraisal Standards .................................................................................. 47

                3.         JPMorgan Chase Benefited From The Securitization of Defective
                           Loans At The Expense of Investors .......................................................... 49

      B.        DEFENDANT BEAR STEARNS ABANDONED ITS UNDERWRITING STANDARDS
                AND APPRAISAL GUIDELINES IN ITS VERTICALLY INTEGRATED
                SECURITIZATION PROCESS ..................................................................................... 52

                1.         Bear Stearns Abandoned Underwriting Guidelines and Appraisal
                           Standards In Its Own Mortgage Lending Operations ............................... 53

                2.         Bear Stearns Was Aware That Third Party Originators Were
                           Abandoning Their Underwriting Guidelines and Appraisal
                           Standards................................................................................................... 58

                3.         Bear Stearns Offloaded Loans That It Had Identified As
                           Fraudulent And/Or Likely To Default Onto Unsuspecting Investors....... 61

      C.        WAMU ABANDONED UNDERWRITING STANDARDS AND APPRAISAL
                GUIDELINES IN ITS VERTICALLY INTEGRATED SECURITIZATION PROCESS ............ 64

                1.         WaMu Abandoned Underwriting Guidelines and Appraisal
                           Standards In Its Own Mortgage Lending Operations ............................... 66

                2.         WaMu Was Aware That Its Subsidiary Long Beach Was
                           Abandoning Its Underwriting Guidelines And Appraisal Standards........ 74

                3.         WaMu Was Aware That Third Party Originators Were
                           Abandoning Their Underwriting Guidelines and Appraisal
                           Standards................................................................................................... 81




                                                                ii
                  4.        WaMu Offloaded Loans That It Had Identified as Fraudulent
                            And/Or Likely To Default Onto Unsuspecting Investors ......................... 83

        D.        THE THIRD PARTY ORIGINATORS OF THE MORTGAGE LOANS UNDERLYING
                  THE CERTIFICATES ABANDONED THEIR UNDERWRITING GUIDELINES AND
                  APPRAISAL STANDARDS ........................................................................................ 85

                  1.        Aegis Mortgage Corporation .................................................................... 86

                  2.        Argent Mortgage Company ...................................................................... 88

                  3.        Chevy Chase Bank, F.S.B......................................................................... 90

                  4.        CIT Group / Consumer Finance, Inc......................................................... 92

                  5.        EquiFirst Corporation ............................................................................... 94

                  6.        Fieldstone Mortgage Company................................................................. 96

                  7.        GMAC Mortgage Corporation.................................................................. 97

                  8.        GreenPoint Mortgage Funding, Inc. ....................................................... 100

                  9.        Lenders Direct Capital Corporation........................................................ 102

                  10.       Novastar Mortgage, Inc. ......................................................................... 103

                  11.       Quicken Loans, Inc. ................................................................................ 106

                  12.       ResMAE Mortgage Corporation............................................................. 107

                  13.       Wells Fargo Bank, N.A........................................................................... 110

                  14.       WMC Mortgage Corp. ............................................................................ 112

V.      DEFENDANTS SYSTEMATICALLY MISREPRESENTED THAT
        APPRAISALS FOR THE SECURITIZED MORTGAGES WERE
        CONDUCTED IN ACCORDANCE WITH INDUSTRY STANDARDS .................... 114

VI.     A SIGNIFICANT NUMBER OF THE MORTGAGE LOANS WERE MADE TO
        BORROWERS WHO DID NOT OCCUPY THE PROPERTIES IN QUESTION ....... 120

VII.    DEFENDANTS’ “CREDIT ENHANCEMENTS” WERE INTENDED TO
        MANIPULATE CREDIT RATINGS RATHER THAN PROVIDE SECURITY......... 122

VIII.   THE CREDIT RATINGS ASSIGNED TO THE CERTIFICATES
        MATERIALLY MISREPRESENTED THE CREDIT RISK OF THE
        CERTIFICATES............................................................................................................. 124



                                                               iii
IX.    DEFENDANTS FAILED TO ENSURE THAT TITLE TO THE UNDERLYING
       MORTGAGE LOANS WAS EFFECTIVELY TRANSFERRED................................. 128

X.     DEFENDANTS’ SPECIFIC MATERIAL MISSTATEMENTS AND
       OMISSIONS IN THE OFFERING DOCUMENTS....................................................... 133

       A.     DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS REGARDING
              UNDERWRITING STANDARDS AND PRACTICES .................................................... 133

       B.     DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS REGARDING
              QUALITY CONTROL PROCEDURES ........................................................................ 136

       C.     DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS REGARDING
              UNDERWRITING EXCEPTIONS ............................................................................... 140

       D.     DEFENDANTS MADE UNTRUE STATEMENTS AND OMISSIONS REGARDING
              LOAN-TO-VALUE RATIOS AND APPRAISALS ....................................................... 144

       E.     DEFENDANTS MATERIALLY MISREPRESENTED THE ACCURACY OF THE
              CREDIT RATINGS ASSIGNED TO THE CERTIFICATES ............................................ 155

       F.     DEFENDANTS MADE UNTRUE STATEMENTS REGARDING THE CREDIT
              ENHANCEMENTS APPLICABLE TO THE CERTIFICATES ......................................... 158

       G.     DEFENDANTS MADE UNTRUE STATEMENTS REGARDING OWNER-
              OCCUPANCY STATISTICS...................................................................................... 164

       H.     DEFENDANTS MADE UNTRUE STATEMENTS REGARDING THE TRANSFER OF
              TITLE TO THE ISSUING TRUSTS............................................................................ 172

       I.     DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS REGARDING
              THE CHARACTERISTICS OF THE MORTGAGE POOLS .............................................. 176

XI.    DEFENDANTS KNEW THAT THE OFFERING DOCUMENTS CONTAINED
       MATERIAL MISSTATEMENTS AND OMISSIONS.................................................. 184

XII.   THE LIABILITY OF THE CONTROL PERSON DEFENDANTS.............................. 186

       A.     DEFENDANT JPMORGAN CHASE .......................................................................... 186

       B.     DEFENDANT JPMM ACQUISITION ....................................................................... 189

       C.     JPMORGAN INDIVIDUAL CONTROL PERSON DEFENDANTS .................................. 190

       D.     NON-DEFENDANT BSCI ...................................................................................... 191

       E.     DEFENDANT EMC ............................................................................................... 194

       F.     BEAR STEARNS INDIVIDUAL CONTROL PERSON DEFENDANTS ............................ 195


                                                          iv
          G.        DEFENDANT JPMORGAN BANK (AS SUCCESSOR TO WAMU BANK)..................... 197

          H.        DEFENDANT WMMSC ........................................................................................ 200

          I.        WAMU INDIVIDUAL CONTROL PERSON DEFENDANTS ......................................... 202

XIII.     PLAINTIFF ABP RELIED ON DEFENDANTS’ MISREPRESENTATIONS TO
          ITS DETRIMENT .......................................................................................................... 205

XIV. PLAINTIFF HAS SUFFERED LOSSES AS A RESULT OF ITS PURCHASES
     OF THE CERTIFICATES.............................................................................................. 206

XV.       JPMORGAN CHASE AND JPMORGAN BANK’S LIABILITY AS
          SUCCESSORS-IN-INTEREST...................................................................................... 213

          A.        JPMORGAN IS LIABLE AS SUCCESSOR-IN-INTEREST TO THE BEAR STEARNS
                    ENTITIES .............................................................................................................. 213

          B.        JPMORGAN IS LIABLE AS SUCCESSOR-IN-INTEREST TO THE WAMU AND
                    LONG BEACH ENTITIES ....................................................................................... 215

XVI. TOLLING OF THE SECURITIES ACT OF 1933 CLAIMS ........................................ 220

          A.        THE JP MORGAN CLASS ACTIONS ....................................................................... 221

                    1.         Plumbers’ & Pipefitters........................................................................... 221

                    2.         The Fort Worth Class Action.................................................................. 221

          B.        THE BEAR STEARNS CLASS ACTION .................................................................... 222

          C.        THE WAMU CLASS ACTION................................................................................. 223

CAUSES OF ACTION ............................................................................................................... 224

          FIRST CAUSE OF ACTION
                VIOLATION OF SECTION 11 OF THE SECURITIES ACT
                (AGAINST ALL DEFENDANTS).............................................................................. 224

          SECOND CAUSE OF ACTION
               VIOLATION OF SECTION 12(A)(2) OF THE SECURITIES ACT
               (AGAINST THE ISSUING AND UNDERWRITER DEFENDANTS)................................. 227

          THIRD CAUSE OF ACTION
               VIOLATION OF SECTION 15 OF THE SECURITIES ACT
               (AGAINST JPMORGAN CHASE, JPMM ACQUISITION, EMC, WMMSC,
               JPMORGAN BANK, AND THE INDIVIDUAL DEFENDANTS)..................................... 229




                                                                     v
          FOURTH CAUSE OF ACTION
               NEGLIGENT MISREPRESENTATION
               (AGAINST ALL DEFENDANTS).............................................................................. 231

          FIFTH CAUSE OF ACTION
                COMMON LAW FRAUD
                (AGAINST THE CORPORATE AND UNDERWRITER DEFENDANTS) .......................... 233

          SIXTH CAUSE OF ACTION
               FRAUDULENT INDUCEMENT
               (AGAINST THE CORPORATE AND UNDERWRITER DEFENDANTS) .......................... 235

          SEVENTH CAUSE OF ACTION
               AIDING & ABETTING FRAUD
               (AGAINST JPMORGAN CHASE AND THE JPMORGAN DEFENDANTS) .................... 236

          EIGHTH CAUSE OF ACTION AIDING & ABETTING FRAUD
               (AGAINST THE BEAR STEARNS DEFENDANTS) ..................................................... 237

          NINTH CAUSE OF ACTION
               AIDING & ABETTING FRAUD
               (AGAINST THE WAMU DEFENDANTS, JPMORGAN BANK, LBSC, BANC OF
               AMERICA, AND CREDIT SUISSE)........................................................................... 239

          TENTH CAUSE OF ACTION
               SUCCESSOR AND VICARIOUS LIABILITY
               (AGAINST JPMORGAN CHASE, JPMS, AND JPMORGAN BANK)........................... 240

PRAYER FOR RELIEF ............................................................................................................. 241

JURY DEMAND ........................................................................................................................ 242




                                                                  vi
                                       INTRODUCTION

       Plaintiff Stichting Pensioenfonds ABP (“ABP”), by its attorneys, Grant & Eisenhofer

P.A., brings this action pursuant to Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the

“Securities Act”), 15 U.S.C. §§77k, 771(a)(2), and 77o; and the common law. This action is

brought against Defendants JPMorgan Chase & Co. (“JPMorgan Chase”); J.P. Morgan Chase

Bank, N.A. (“JPMorgan Bank”); J.P. Morgan Mortgage Acquisition Corp. (“JPMM

Acquisition”); J.P. Morgan Securities, LLC (“JPMS”); J.P. Morgan Acceptance Corporation I

(“JPM Acceptance”); EMC Mortgage LLC (“EMC”); Bear Stearns & Co. Inc (“Bear Stearns”);

Bear Stearns Asset Backed Securities I LLC (“BSABS”); Structured Asset Mortgage

Investments II Inc. (“SAMI”); WaMu Asset Acceptance Corp. (“WAAC”); Washington Mutual

Mortgage Securities Corp. (“WMMSC”); WaMu Capital Corp. (“WaMu Capital”); Long Beach

Securities Corp. (“LBSC”); Banc of America Securities LLC (“Banc of America”); Credit Suisse

Securities (USA) LLC “(“Credit Suisse”); David Beck; Brian Bernard; Richard Careaga;

Thomas W. Casey; Christine E. Cole; David M. Duzyk; Stephen Fortunato; Michael J.

Giampaolo; Rolland Jurgens; William A. King; Edwin F. McMichael; Louis Schioppo, Jr.;

Katherine Garniewski; Thomas Green; Joseph T. Jurkowski, Jr.; Thomas Lehmann; Kim

Lutthans; Thomas F. Marano; Jeffrey Mayer; Samuel L. Molinaro, Jr.; Michael B. Nierenberg;

Diane Novack; Matthew E. Perkins; John F. Robinson; Jeffrey Verschleiser; Donald Wilhelm;

and David H. Zielke (collectively, the “Defendants”).

       Plaintiff makes the allegations in this Complaint based upon personal knowledge as to

matters concerning Plaintiff and its own acts, and upon information and belief as to all other

matters. This information is derived from the investigation by Plaintiff’s counsel, which has

included a review and analysis of annual reports and publicly filed documents, reports of

governmental investigations by the United States Securities and Exchange Commission (the
“SEC”), the Financial Crisis Inquiry Commission (the “FCIC”), the United States Department of

Justice (the “DOJ”), the United States Senate Permanent Subcommittee on Investigations (the

“PSI”), and numerous investigations by other federal and state governmental units, as well as

press releases, news articles, analysts’ statements, conference call transcripts and presentations,

and transcripts from speeches and remarks given by Defendants. In addition, Plaintiff’s counsel

conferred with counsel for other plaintiffs who have filed other complaints against these

Defendants based on the same or similar activities. Based on the foregoing, Plaintiff believes

that substantial additional evidentiary support exists for the allegations herein, which Plaintiff

will find after a reasonable opportunity for discovery.

                               SUMMARY OF ALLEGATIONS

       1.      This action arises out of ABP’s purchases of certain residential mortgage-backed

securities (“RMBS”), as evidenced in the form of “Certificates”, in reliance on the false and

misleading statements that were made by Defendants.                  Based on these material

misrepresentations and omissions, ABP purchased securities that were far riskier than had been

represented, backed by mortgage loans worth significantly less than had been represented, and

that had been made to borrowers who were much less creditworthy than had been represented.

       2.      The securities purchased by ABP were collateralized against mortgages originated

and/or acquired by Defendants JPMorgan Bank, EMC, and non-defendants such as Bear Stearns

Residential Mortgage Corporation (“BSRMC”); Performance Credit Corp. (“Performance”) f/k/a

Encore Credit Corp. (“Encore”); Long Beach Mortgage (“Long Beach”); and Washington

Mutual Bank (“WaMu Bank”), as well as various other third-party originators defined in ¶ 71

below (collectively the “Originators”).

       3.      These Originators did not, however, hold the mortgage loans they originated

and/or acquired.   Rather, taking advantage of an unprecedented boom in the securitization


                                                 2
industry, these Originators flipped their mortgage loans to investment banks, which then

repackaged the loans and sold the loans as RMBS to investors seeking safe investments, such as

Plaintiff ABP. In the case of the loans underlying ABP’s Certificates, the entities that sold the

RMBS were JPMorgan Chase, Bear Stearns, WaMu and Long Beach. Specifically, each of these

entities pooled the mortgage loans made by the Originators; deposited the loans into special

purpose entities or “trusts”; and then repackaged the loans for sale to investors in the form of

RMBS. Underwriters, in most cases, affiliates of JPMorgan Chase, Bear Stearns and WaMu,

sold the RMBS to investors such as ABP.

        4.      The Certificates entitled investors to receive monthly distributions of interest and

principal on cash flows from the mortgages held by the trusts. The Certificates issued by each

trust were divided into several classes (or “tranches”) that had different seniority, priorities of

payment, exposure to default, and interest payment provisions.              Rating agencies, such as

Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Corporation (“S&P”), DBRS,

Inc. (“DBRS”) and/or Fitch, Inc. (“Fitch”),1 rated the investment quality of all tranches of

Certificates based upon information provided by the Defendants about the quality of the

mortgages in each mortgage pool and the seniority of the Certificate among the various

Certificates issued by each trust. These ratings, in part, determined the price at which these

Certificates were offered to investors.

        5.      In selling the Certificates, the Defendants prepared and filed with the SEC certain

registration statements (the “Registration Statements”), prospectuses (the “Prospectuses”),

prospectus supplements (the “Prospectus Supplements”, and free writing prospectuses (the “Free


1
 Moody’s, Fitch, DBRS and S&P are approved by the SEC as “Nationally Recognized Statistical Rating
Organizations” and provide credit ratings that are used to distinguish among grades of creditworthiness of
various securities under the federal securities laws.


                                                    3
Writing Prospectuses”, and together with the Registration Statements, Prospectuses, and

Prospectus Supplements, the “Offering Documents”). In these Offering Documents, Defendants

repeatedly touted the strength of the Originators’ underwriting guidelines and standards; the fact

that the underwriting guidelines and standards were designed to ensure the ability of the

borrowers to repay the principal and interest on the underlying loans and the adequacy of the

collateral; and that the mortgages underlying the Certificates were originated in accordance with

those stated underwriting guidelines and standards. In addition, in the Offering Documents,

Defendants repeatedly assured investors as to the soundness of the appraisals used to arrive at the

value of the underlying properties and, specifically, that the real estate collateralizing the loans

had been subjected to objective and independent real estate appraisals that complied with the

Uniform Standards of Professional Appraisal Practice (“USPAP”) and, in some cases, that they

met the even more rigorous appraisal requirements of the Federal National Mortgage Association

(“Fannie Mae) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Defendants

emphasized their quality control procedures such as re-underwriting of a random selection of

mortgage loans, conducting post-funding audits of origination files, and/or re-verifying

information to assure asset quality.

       6.      Defendants JPMorgan, Bear Stearns, WaMu, and Long Beach were obligated to

perform due diligence on the mortgage loans they acquired from third parties. Defendants

represented in the Offering Documents, which Plaintiff relied on, that they performed such due

diligence and undertook certain quality control measures to ensure that shoddily underwritten

mortgages were not included in the Certificates they underwrote and sold. See, e.g., Prospectus

Supplement for WaMu Series 2007-HE2 Trust (Form 424B5), at S-32 (Apr. 6, 2007): “As part

of its quality control system, the sponsor re-verifies information that has been provided by the




                                                 4
mortgage brokerage company prior to funding a loan and the sponsor conducts a post-funding

audit of every origination file.”

       7.      As set forth below, the Offering Documents contained material misstatements and

omitted material information.       Contrary to Defendants’ assurances, the Originators of the

underlying loans had not followed their touted underwriting guidelines and standards when

originating and/or acquiring the mortgage loans. To the contrary, the Originators had engaged in

a wholesale and systematic abandonment of their underwriting guidelines, thereby granting

mortgage loans to borrowers who did not satisfy the eligibility criteria as described in the

Offering Documents. In addition, the mortgages underlying the Certificates had been extended

based on collateral appraisals that were not performed in accordance with USPAP or Fannie Mae

or Freddie Mac, so that the value of the underlying properties had been overstated, thereby

exposing investors such as ABP to additional losses in the event of foreclosure. Defendants did

not apply rigorous quality control procedures to uncover these lapses, and when they learned of

such lapses, they deliberately overlooked them.

       8.      The practices of financial institutions such as JPMorgan, Bear Stearns, WaMu,

and Long Beach and their role in inflating the housing bubble have been and continue to be the

subject of intense regulatory scrutiny. As recently as May 21, 2011, the WALL STREET JOURNAL

reported that New York State Attorney General Eric Schneiderman had requested informal

meetings with executives from several financial firms, including JPMorgan, as part of an

investigation by his office into mortgage practices and the packaging and sale of loans to

investors.

       9.      Defendants’ conduct with respect to mortgage-backed securities has also been

detailed in both the January 27, 2011, Final Report of the National Commission on the Causes of




                                                  5
the Financial and Economic Crisis in the United States (the “FCIC Report”) and the April 13,

2011, report issued by the PSI, chaired by Senator Carl Levin, entitled WALL STREET AND THE

FINANCIAL CRISIS: ANATOMY OF A FINANCIAL COLLAPSE (the “Levin Report”). Both reports and

their supporting testimony and exhibits have shed significant light on the extent to which

Defendants intentionally securitized bad mortgage loans and sold them to investors like Plaintiff

ABP. Numerous other investigations have been launched by the DOJ, the SEC, and various state

Attorneys General.

       10.     As a result of the untrue statements and omissions in the Offering Documents,

Plaintiff purchased Certificates that were far riskier than represented and that were not equivalent

to other investments with the same credit ratings. The rating agencies have now significantly

downgraded the Certificates purchased by Plaintiff, all of which were represented in the Offering

Documents to be rated Aaa, the highest possible rating on the Moody’s scale, or AAA, the

highest possible rating on the S&P scale, at the time of purchase The Certificates, therefore, are

no longer marketable at anywhere near the purchase prices paid by Plaintiff. As a consequence,

Plaintiff has suffered losses on its purchases of the Certificates.

       11.     Defendants JPMorgan, Bear Stearns, WaMu, and Long Beach knew about the

poor quality of the loans they securitized and sold to investors like Plaintiff ABP, because in

order to continue to keep their scheme running, they completely vertically integrated their RMBS

operations by having affiliated entities at every stage of the process.

                                 JURISDICTION AND VENUE

       12.     This Court has personal jurisdiction over all of the Defendants pursuant to New

York Civil Practice Law and Rules (“CPLR”) §§ 301 and 302.

       13.     Venue is proper in this Court pursuant to CPLR § 503. Many of the acts and

transactions alleged herein, including the negotiation, preparation and dissemination of many of


                                                  6
the material misstatements and omissions contained in the Registration Statements, Prospectuses,

Prospectus Supplements, and Free Writing Prospectuses filed in connection with the Offerings,

occurred in substantial part in this State. Additionally, the Certificates were actively marketed

and sold in this State.

                                              PARTIES

        A.      PLAINTIFF

        14.     Plaintiff ABP is an independent administrative pension fund established under the

laws of the Kingdom of the Netherlands. ABP serves as the pension fund for public employees

in the governmental and education sectors in the Netherlands. With assets under management of

approximately € 250 billion, ABP is one of the three largest pension funds in the world. ABP

purchased the Certificates from the trusts listed in the table in ¶ 85, below.

        B.      DEFENDANTS

                1.        JPMorgan Corporate Entities

        15.     JPMorgan Chase. Defendant JPMorgan Chase is a Delaware corporation whose

principal office is located in New York. JPMorgan Chase is a global financial services firm and

one of the largest banking institutions in the United States. It is the direct or indirect parent of all

of the JPMorgan, Bear Stearns, and WaMu corporate defendants in this action.

        16.     JPMorgan Bank. Defendant JPMorgan Bank is a national banking association, a

wholly-owned bank subsidiary of JPMorgan Chase, and a New York corporation. Its main office

is located in Columbus, Ohio. JPMorgan Bank is also the successor-in-interest to WaMu Bank,

as discussed more fully in Section XIII.B below. JPMorgan Bank, either directly or through its

affiliates, originated the mortgage loans underlying certain of the Certificates identified below.

        17.     The JPMorgan Sponsor Defendant. Defendant JPMM Acquisition is a Delaware

corporation with its principal executive offices located in New York.             JPMM Acquisition


                                                   7
engages in the securitization of assets and services loans through its affiliates.       JPMM

Acquisition is a direct, wholly-owned subsidiary of Defendant JPMorgan Bank.             JPMM

Acquisition acted as the sponsor and seller with regard to each of the JPMorgan Trusts listed in

¶ 85, below.

       18.     The JPMorgan Issuing Defendant. Defendant JPM Acceptance is a Delaware

corporation with its principal place of business in New York. JPM Acceptance is a direct,

wholly-owned subsidiary of J.P. Morgan Securities Holdings LLC which, in turn, is a direct,

wholly-owned subsidiary of JPMorgan Chase. JPM Acceptance acted as the depositor in the

securitization of each the JPMorgan Trusts listed in ¶ 85, below. As depositor, JPM Acceptance

filed relevant Registration Statements with the SEC.

       19.     The JPMorgan Underwriter Defendant.          Defendant JPMS is a Delaware

corporation with its principal place of business in New York. JPMS was formerly known as J.P.

Morgan Securities, Inc. JPMS engages in investment banking activities in the United States and

is the primary nonbank subsidiary of JPMorgan Chase. JPMS is also the successor-in-interest to

Bear Stearns, as discussed more fully in Section XIII.A below.        JPMS acted as the sole

underwriter of the Certificates issued by each of the JPMorgan Trusts listed in ¶ 85, below. As

the sole underwriter of the JPMorgan-issued Certificates, JPMS participated in the drafting and

dissemination of the Offering Documents pursuant to which all of the JPMorgan Certificates

were sold to Plaintiff.

       20.     Defendants JPMorgan Bank, JPM Acceptance, JPMM Acquisition, and JPMS are

referred to collectively hereinafter as “JPMorgan.” An organizational chart of JPMorgan is set

forth below.




                                               8
                                           Defendant
                                         JPMorgan Chase




          Non-Party                         Defendant                        Defendant
    J.P. Morgan Securities                JPMorgan Bank                        JPMS
         Holdings LLC                                                       (Underwriter)




          Defendant                         Defendant
       JPM Acceptance                    JPMM Acquisition
         (Depositor)                        (Sponsor)


               2.      JPMorgan Individual Defendants

       21.     Defendant Brian Bernard (“Bernard”) was, at relevant times, a President of

Defendant JPM Acceptance. Bernard signed the JPMorgan Registration Statement dated April

23, 2007, governing certain of the JPMorgan Trusts at issue herein.

       22.     Defendant Christine E. Cole (“Cole”) was, at relevant times, a Director of

Defendant JPM Acceptance. Cole signed the Registration Statements for each of the JPMorgan

securitizations listed in ¶ 27, below.

       23.     Defendant David M. Duzyk (“Duzyk”) was, at relevant times, the President and a

Director of Defendant JPM Acceptance. Duzyk signed the Registration Statements for each of

the JPMorgan securitizations listed in ¶ 27, below.

       24.     Defendant William A. King (“King”) was, at relevant times, the President and a

Director of Defendant JPM Acceptance. King signed the JPMorgan Registration Statement

dated April 23, 2007, governing certain of the JPMorgan Trusts at issue herein.




                                                9
         25.   Defendant Edwin F. McMichael (“McMichael”) was, at relevant times, a Director

of Defendant JPM Acceptance. McMichael signed the Registration Statements for each of the

JPMorgan securitizations listed in ¶ 27, below.

         26.   Defendant Louis Schioppo, Jr. (“Schioppo”) was, at relevant times, the Controller

and Chief Financial Officer of Defendant JPM Acceptance. Schioppo signed the Registration

Statements for each of the JPMorgan securitizations listed in ¶ 27, below.

         27.   Defendants Bernard, Cole, Duzyk, King, McMichael, and Schioppo are referred

to hereinafter collectively as the “Individual JPMorgan Defendants,” and together with JP

Morgan are referred to hereinafter collectively as the “JPMorgan Defendants.” A summary of

the Registration Statements signed by the Individual JPMorgan Defendants is listed in the table

below.


     Issuing Trust(s)          Document             Registration             Signatories
                                 Date             Statement / File
                                                        No.
JPMAC 2006-HE3                                                       David M. Duzyk
JPMAC 2006-RM1                 03/31/2006              Form S-3/A    Louis Schioppo, Jr.
JPMAC 2006-WMC4                                        333-130192    Christine E. Cole
                                                                     Edwin F. McMichael
JPMAC 2007-CH3                                                       Brian Bernard
JPMAC 2007-CH4                 04/23/2007              Form S-3/A    Louis Schioppo, Jr.
                                                       333-141607    Christine E. Cole
                                                                     David M. Duzyk
                                                                     Edwin F. McMichael
                                                                     William King

               3.     Bear Stearns Corporate Entities

         28.   The Bear Stearns Sponsor Defendant. Defendant EMC is a Delaware corporation

with its principal place of business in Lewisville, Texas and was established as a mortgage

banking company to facilitate the purchase and servicing of whole loan portfolios. EMC was, at

all relevant times, a wholly-owned subsidiary of the Bear Stearns Companies Inc. (“BSCI”).


                                                  10
EMC acted as the sponsor and seller with regard to each of the Bear Stearns Trusts listed in ¶ 85,

below. EMC also originated mortgage loans that were included in Issuing Trusts from which

Plaintiff purchased certain Certificates identified below.    Pursuant to a Merger Agreement

effective May 30, 2008, EMC’s parent company BSCI merged with Bear Stearns Merger

Corporation, a wholly-owned subsidiary of Defendant JPMorgan Chase, making EMC a wholly-

owned indirect subsidiary of Defendant JPMorgan Chase.

       29.     The Bear Stearns Issuing Defendants.           Defendant BSABS, a Delaware

corporation with its principal place of business in New York, was organized for the sole purpose

of serving as a private secondary mortgage market conduit. BSABS was a wholly-owned

subsidiary of BSCI, and is now therefore a wholly-owned indirect subsidiary of Defendant

JPMorgan Chase. BSABS acted as the depositor in the securitization of certain Certificates

identified below. As depositor, BSABS filed relevant Registration Statements with the SEC.

       30.     Defendant SAMI is a Delaware corporation with its principal place of business in

New York. SAMI was a wholly-owned subsidiary of BSCI, and is now therefore a wholly-

owned indirect subsidiary of JPMorgan Chase. SAMI acted as the depositor in the securitization

of Bear Stearns ALT-A Trust 2004-6. As depositor, SAMI filed the relevant Registration

Statement with the SEC.

       31.     The Bear Stearns Underwriter Defendant. Defendant Bear Stearns is a Delaware

corporation with its principal place of business in New York. Bear Stearns was a wholly-owned

subsidiary of BSCI. Bear Stearns acted as the underwriter of the Certificates issued by the Bear

Stearns Trusts listed in ¶ 85, below. As the sole underwriter, Bear Stearns participated in the

drafting and dissemination of the Offering Documents pursuant to which all of the Bear Stearns

Certificates were sold to Plaintiff. Pursuant to a merger agreement, on or about October 1, 2008,




                                               11
Bear Stearns merged with JPMS and is now doing business as JPMS. All allegations against

Bear Stearns are thus made against its successor-in-interest, JPMS

       32.        Defendants BSABS, SAMI, EMC, and Bear Stearns are referred to hereinafter

collectively as “Bear Stearns.” An organizational chart of Bear Stearns is set forth below.



                                             Defendant
                                           JPMorgan Chase




                                               Non-Party
                                                BSCI
                                        (acquired by JPMorgan Chase
                                         in merger with Bear Stearns
                                             Merger Corporation)




      Defendant                   Defendant                     Defendant          Defendant
        EMC                        BSABS                         SAMI         Bear Stearns (merged
      (Sponsor)                  (Depositor)                   (Depositor)        with JPMS)
                                                                                 (Underwriter)

                  4.     Bear Stearns Individual Defendants

       33.        Defendant Katherine Garniewksi (“Garniewski”) was, at relevant times, a

Director of Defendant BSABS. Garniewski signed the Bear Stearns Registration Statements

dated June 14, 2005 and March 31, 2006, governing certain of the Bear Stearns Trusts identified

in ¶ 42, below.

       34.        Defendant Joseph T. Jurkowski, Jr. (“Jurkowski”) was, at relevant times, the Vice

President of Defendant BSABS. Jurkowski signed the Bear Stearns Registration Statements for

all of the Bear Stearns securitizations listed in ¶ 42, below.




                                                    12
       35.        Defendant Kim Lutthans (“Lutthans”) was, at relevant times, an Independent

Director of Defendant BSABS. Lutthans signed the Bear Stearns Registration Statements dated

June 14, 2005 and March 31, 2006, governing certain of the Bear Stearns Trusts identified in

¶ 42, below.

       36.        Defendant Thomas F. Marano (Marano”) was, at relevant times, a Director of

Defendants BSABS and SAMI. Marano signed the Bear Stearns Registration Statements for all

of the Bear Stearns securitizations listed in ¶ 42, below.

       37.        Defendant Jeffrey Mayer (“Mayer”) was, at relevant times, a Director of

Defendants BSABS and SAMI. Mayer signed the Bear Stearns Registration Statement dated

May 11, 2004, governing Bear Stearns ALT-A Trust 2004-6.

       38.        Defendant Samuel L. Molinaro, Jr. (“Molinaro”) was, at relevant times, the

Treasurer and a Director of Defendant BSABS. Molinaro signed the Bear Stearns Registration

Statements dated June 14, 2005 and March 31, 2006, governing certain of the Bear Stearns

Trusts identified in ¶ 42, below.

       39.        Defendant Michael B. Nierenberg (“Nierenberg”) was, at relevant times, the

Treasurer of Defendant SAMI. Nierenberg signed the Bear Stearns Registration Statement dated

May 11, 2004, governing Bear Stearns ALT-A Trust 2004-6.

       40.        Defendant Matthew E. Perkins (“Perkins”) was, at relevant times, the President

and a Director of Defendant BSABS. Perkins signed the Bear Stearns Registration Statements

dated June 14, 2005 and March 31, 2006, governing certain of the Bear Stearns Trusts identified

in ¶ 42, below.




                                                 13
       41.     Defendant Jeffrey L. Verschleiser (“Verschleiser”) was, at relevant times, the

President of Defendant SAMI. Verschleiser signed the Bear Stearns Registration Statement

dated May 11, 2004, governing Bear Stearns ALT-A Trust 2004-6.

       42.     Defendants Garniewski, Jurkowski, Lutthans, Marano, Mayer, Molinaro,

Nierenberg, Perkins, and Verschleiser are referred to collectively hereinafter as the “Individual

Bear Stearns Defendants,” and together with Bear Stearns are referred to hereinafter collectively

as the “Bear Stearns Defendants.” A summary of the Registration Statements signed by the

Individual Bear Stearns Defendants is listed in the table below.


     Issuing Trust(s)           Document           Registration             Signatories
                                  Date           Statement / File
                                                       No.
BSABS 2006-HE7                                                      Matthew E. Perkins
BSABS 2006-HE9                 03/31/2006            Form S-3/A     Samuel L. Molinaro, Jr.
BSABS 2007-2                                         333-131374     Thomas F. Marano
BSABS 2007-HE1                                                      Kim Lutthans
BSABS 2007-HE2                                                      Katherine Garniewski
BSABS 2007-HE3                                                      Joseph T. Jurkowski, Jr.
BSABS 2007-HE4
BSABS 2007-HE5

BALTA 2004-6                                                        Jeffrey L. Verschleiser
                               05/11/2004            Form S-3/A     Michael B. Nierenberg
                                                     333-115122     Jeffrey Mayer
                                                                    Thomas F. Marano
                                                                    Joseph T. Jurkowski, Jr.
SACO 2005-5                                                         Matthew E. Perkins
                               06/14/2005              S-3/A        Samuel L. Molinaro, Jr.
                                                     333-125422     Thomas F. Marano
                                                                    Kim Lutthans
                                                                    Katherine Garniewski
                                                                    Joseph T. Jurkowski, Jr.




                                                14
               5.      WaMu Corporate Entities

       43.     The WaMu Sponsor Defendants.            Defendant WMMSC was a wholly-owned

subsidiary of WaMu Bank and is now a wholly-owned subsidiary of Defendant JPMorgan Bank,

successor-in-interest to WaMu Bank. WMMSC acted as the sponsor and seller with regard to

certain Certificates identified below and at issue herein.

       44.     Defendant JPMorgan Bank is the successor-in-interest to WaMu Bank, which was

a federal savings association and an indirect wholly-owned subsidiary of Washington Mutual,

Inc. (“WMI”). WaMu Bank acted as the sponsor and seller with regard to certain Certificates

identified below.

       45.     On September 25, 2008, JPMorgan Bank agreed to assume substantially all of

WaMu Bank’s liabilities and purchase substantially all of WaMu Bank’s assets, including

Defendants WaMu Capital, WAAC, WMMSC, and LBSC. Therefore, this action is brought

against JPMorgan Bank as the successor-in-interest to WaMu Bank. WaMu Bank and its former

parent, WMI, are not defendants in this action.

       46.     The WaMu Issuing Defendants.            Defendant WAAC was a wholly-owned

subsidiary of WaMu Bank, and is now a wholly-owned subsidiary of JPMorgan Bank, successor-

in-interest to WaMu Bank. WAAC engages in no activities other than securitizing assets.

WAAC acted as the depositor in the securitization of certain Certificates identified below. As

depositor, WAAC filed the relevant Registration Statements with the SEC.

       47.     Defendant LBSC was a wholly-owned subsidiary of Long Beach Mortgage

Company. As of July 1, 2006, Long Beach Mortgage Company became a division of WaMu

Bank. LBSC is now a subsidiary of JPMorgan Bank. LBSC was organized for the purpose of

serving as a private secondary mortgage market conduit, and engages in no activities other than




                                                  15
securitizing assets. LBSC acted as the depositor in the securitization of certain Certificates

identified below. As depositor, LBSC filed the relevant Registration Statements with the SEC.

        48.     The WaMu Underwriter Defendants. Defendant WaMu Capital was a wholly

owned subsidiary of WaMu Bank and is now a wholly-owned subsidiary of Defendant

JPMorgan Bank. WaMu Capital acted as an underwriter of the Certificates issued by the WaMu

Trusts listed in ¶ 85, below. As an underwriter, WaMu Capital participated in the drafting and

dissemination of the Offering Documents pursuant to which all of the WaMu Certificates were

sold to Plaintiff.

        49.     Defendants WMMSC, WAAC, LBSC, and WaMu Capital, as well as non-

defendants WMI and WaMu Bank, are referred to collectively hereinafter as “WaMu.” An

organizational chart of WaMu is set forth below.

                                               Defendant
                                             JPMorgan Bank



                                                  Non-Party
                                                    WMI



                                                   Non-Party
                                                  WaMu Bank
                                         (assets, subsidiaries, and liabilities
                                            acquired by JPMorgan Bank)




       Defendant               Defendant                                  Defendant     Defendant
       WMMSC                  WaMu Capital                                 WAAC          LBSC
       (Sponsor)              (Underwriter)                              (Depositor)   (Depositor)




                                                   16
               6.      WaMu Individual Defendants

         50.   Defendant David Beck (“Beck”) was, at relevant times, the President and a

Director of Defendant WAAC. Beck signed the WaMu Registration Statements dated January 3,

2006, and April 9, 2007, governing certain of the WaMu Trusts identified in ¶ 63, below.

         51.   Defendant Richard Careaga (“Careaga”) was, at relevant times, the First Vice

President of Defendant WAAC.        Careaga signed the WaMu Registration Statement dated

January 3, 2006, governing certain of the WaMu Trusts identified in ¶ 63, below.

         52.   Defendant Thomas W. Casey (“Casey”) was, at relevant times, a Director of

Defendant LBSC. Casey signed the WaMu Registration Statement dated March 21, 2006,

governing certain of the WaMu Trusts identified in ¶ 63, below.

         53.   Defendant Stephen Fortunato (“Fortunato”) was, at relevant times, the Chief

Financial Officer of Defendant LBSC and Defendant WAAC. Fortunato signed the WaMu

Registration Statements dated March 21, 2006 and April 9, 2007, governing certain of the WaMu

Trusts identified in ¶ 63, below.

         54.   Defendant Michael J. Giampaolo (“Giampaolo”) was, at relevant times the

Principal Executive Officer of Defendant LBSC. Giampaolo signed the WaMu Registration

Statement dated March 21, 2006, governing certain of the WaMu Trusts identified in ¶ 63,

below.

         55.   Defendant Thomas Green (“Green”) was, at relevant times, Chief Financial

Officer of Defendant WAAC. Green signed the WaMu Registration Statement dated January 3,

2006, governing certain of the WaMu Trusts identified in ¶ 63, below.

         56.   Defendant Rolland Jurgens (“Jurgens”) was, at relevant times, Controller of

Defendants WAAC and LBSC.           Jurgens signed the WaMu Registration Statements dated




                                              17
January 3, 2006 and March 21, 2006, governing certain of the WaMu Trusts identified in ¶ 63,

below.

         57.   Defendant Thomas Lehmann (“Lehmann”) was, at relevant times, the President

and a Director of Defendant WAAC and First Vice President, Director and Senior Counsel of

Defendant WMMSC. Lehmann signed the WaMu Registration Statement dated April 9, 2007,

governing Washington Mutual Mortgage Pass-Through Certificates, WMALT Series 2007-OC2.

         58.   Defendant Diane Novak (“Novak”) was, at relevant times, a Director of

Defendant WAAC. Novak signed the WaMu Registration Statements dated January 3, 2006, and

April 9, 2007, governing certain of the WaMu Trusts identified in ¶ 63, below.

         59.   Defendant John F. Robinson (“Robinson”) was, at relevant times, a Director of

Defendant LBSC. Robinson signed the WaMu Registration Statement dated March 21, 2006,

governing certain of the WaMu Trusts identified in ¶ 63, below.

         60.   Defendant Donald Wilhelm (“Wilhelm”) was, at relevant times, Controller of

Defendant WAAC. Wilhelm signed the WaMu Registration Statement dated April 9, 2007,

governing Washington Mutual Mortgage Pass-Through Certificates, WMALT Series 2007-OC2.

         61.   Defendant David H. Zielke (“Zielke”) was, at relevant times, First Vice President

and Assistant General Counsel of LBSC. Zielke signed the WaMu Registration Statements dated

April 9, 2007, governing Washington Mutual Mortgage Pass-Through Certificates, WMALT

Series 2007-OC2.

         62.   Defendants Beck, Careaga, Casey, Fortunato, Giampaolo, Green, Jurgens,

Lehmann, Novak, Robinson, Wilhelm, and Zielke are referred to collectively hereinafter as the

“Individual WaMu Defendants,” and together with WaMu               are referred to hereinafter




                                               18
collectively as the “WaMu Defendants.” A summary of the Registration Statements signed by

the Individual WaMu Defendants is listed in the table below.

       63.     The Individual JPMorgan Defendants, Individual Bear Stearns Defendants, and

Individual WaMu Defendants are referred to collectively hereinafter as the “Individual

Defendants.”

     Issuing Trust(s)            Document        Registration             Signatories
                                   Date        Statement / File
                                                     No.
LBMLT 2006-10                                                     Thomas W. Casey
LBMLT 2006-11                    03/21/2006         Form S-3/A    John F. Robinson
LBMLT 2006-6                                        333-131252    Michael J. Giampaolo
LBMLT 2006-9                                                      Stephen Fortunato
                                                                  Rolland Jurgens
WMHE 2007-HE1                                                     David Beck
WMHE 2007-HE2                    01/03/2006         Form S-3/A    Diane Novak
WMALT 2006-AR10                                     333-130795    Thomas Green
WMALT 2007-HY1                                                    Rolland Jurgens
                                                                  Richard Careaga
WMALT 2007-OC2                   04/09/2007                       David Beck
                                                    Form S-3A     Diane Novak
                                                    333-141255    Thomas Lehmann
                                                                  Stephen Fortunato
                                                                  Donald Wilhelm
                                                                  David H. Zielke

               7.         Other Underwriter Defendants

       64.     Defendant Banc of America is an SEC-registered broker-dealer with its principal

place of business in New York. Banc of America acted as an underwriter of the Certificates

issued by the following WaMu Trusts: Long Beach Mortgage Loan Trust 2006-6; Long Beach

Mortgage Loan Trust 2006-9; WaMu Asset-Backed Certificates WaMu Series 2007-HE1 Trust;

and WaMu Series 2007-HE2 Trust. As an underwriter, Banc of America participated in the

drafting and dissemination of the Offering Documents pursuant to which the WaMu Certificates

were sold to Plaintiff.




                                               19
       65.     Defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”) is a Delaware

corporation with its principal place of business in New York.           Credit Suisse acted as an

underwriter of the Certificates issued by Long Beach Mortgage Loan Trust 2006-6. As an

underwriter, Credit Suisse participated in the drafting and dissemination of the Offering

Documents pursuant to which the WaMu Certificates were sold to Plaintiff.

       66.     Defendants JPMM Acquisition, EMC, WMMSC, and JPMorgan Bank (in its

capacity as successor-in-interest to non-defendant WaMu Bank), are referred to collectively

hereinafter as the “Sponsor Defendants.”

       67.     Defendants JPM Acceptance, BSABS, SAMI, WAAC, and LBSC are referred to

collectively hereinafter as the “Issuing Defendants.”

       68.     Defendants JPMS, BSC, WaMu Capital, Banc of America, and Credit Suisse are

referred to collectively hereinafter as the “Underwriter Defendants.”

       69.     All Defendants identified in ¶¶ 15-19, 28-31, 43, and 46-48 are hereinafter

collectively referred to as the “Corporate Defendants.”

       C.      RELEVANT NON-PARTIES

               1.     Issuing Trusts

       70.     Non-parties, the “Issuing Trusts”, are common law trusts formed under the laws

of the State of New York and/or statutory trusts formed under the laws of the State of Delaware.

The Issuing Trusts were created and structured by JPMorgan, Bear Stearns and WaMu to issue

billions of dollars worth of RMBS. The Issuing Trusts issued the Certificates purchased by

Plaintiff. The non-party Issuing Trusts are:

               •      J.P. Morgan Mortgage Acquisition Trust 2006-HE3

               •      J.P. Morgan Mortgage Acquisition Trust 2006-RM1

               •      J.P. Morgan Mortgage Acquisition Trust 2006-WMC4


                                                20
              •      J.P. Morgan Mortgage Acquisition Trust 2007-CH3

              •      J.P. Morgan Mortgage Acquisition Trust 2007-CH4

(together, the “JPMorgan Trusts”)

              •      Bear Stearns ALT-A Trust 2004-6

              •      Bear Stearns Asset Backed Securities I Trust 2006-HE7

              •      Bear Stearns Asset Backed Securities I Trust 2006-HE9

              •      Bear Stearns Asset Backed Securities Trust 2007-2

              •      Bear Stearns Asset Backed Securities I Trust 2007-HE1

              •      Bear Stearns Asset Backed Securities I Trust 2007-HE2

              •      Bear Stearns Asset Backed Securities I Trust 2007-HE3

              •      Bear Stearns Asset Backed Securities I Trust 2007-HE4

              •      Bear Stearns Asset Backed Securities I Trust 2007-HE5

              •      SACO I Trust 2005-5

(together, the “Bear Stearns Trusts”)

              •      Long Beach Mortgage Loan Trust 2006-6

              •      Long Beach Mortgage Loan Trust 2006-9

              •      Long Beach Mortgage Loan Trust 2006-10

              •      Long Beach Mortgage Loan Trust 2006-11

              •      WaMu Asset-Backed Certificates WaMu Series 2007-HE1

              •      WaMu Asset-Backed Certificates WaMu Series 2007-HE2

              •      Washington Mutual Asset-Backed Certificates WMABS Series 2007-HE2

              •      Washington Mutual Mortgage Pass-Through Certificates, WMALT Series
                     2006-AR10

              •      Washington Mutual Mortgage Pass-Through Certificates, WMALT Series
                     2007-HY1



                                            21
                •       Washington Mutual Mortgage Pass-Through Certificates, WMALT Series
                        2007-OC2

(together, the “WaMu Trusts”).

                2.      Third Party Originators

        71.     Many of the loans underlying the Certificates were acquired by the sponsor for

each securitization from unaffiliated third-party originators, each of which is discussed in greater

detail, infra. These third-party originators include the following:

                •       Aegis Mortgage Corporation (“Aegis”)

                •       Argent Mortgage Company (“Argent”)

                •       Chevy Chase Bank, F.S.B. (“Chevy Chase”)

                •       CIT Group/ Consumer Finance, Inc. (“CIT Group”)

                •       EquiFirst Corporation (“Equifirst”)

                •       Fieldstone Mortgage Company (“Fieldstone”)

                •       GMAC Mortgage Corporation (“GMAC”)

                •       GreenPoint Mortgage Funding, Inc. (“Greenpoint”)

                •       Lenders Direct Capital Corporation (“Lenders”)

                •       Novastar Mortgage, Inc. (“Novastar”)

                •       Quicken Loans, Inc. (“Quicken”)

                •       ResMAE Mortgage Corporation (“ResMAE”)

                •       Wells Fargo Bank, N.A. (“Wells Fargo”) and

                •       WMC Mortgage Corp. (“WMC Mortgage”)

(collectively the “Originators”).2




2
  Other non-party originators and/or acquirers of mortgage loans pooled into the Issuing Trusts included
SouthStar Funding LLC, Finance America LLC and Cendant Mortgage Company.


                                                  22
                               SUBSTANTIVE ALLEGATIONS

I.     THE SECURITIZATION PROCESS GENERALLY

       72.     Traditionally, the process for extending mortgage loans to borrowers involved a

lending institution (the loan originator) making a loan to a home buyer in exchange for a

promise, documented in the form of a promissory note, by the home buyer to repay the principal

and interest on the loan. The loan originator obtained a lien against the home as collateral in the

event the home buyer defaulted on its obligation. Under this simple model, the loan originator

held the promissory note until it matured and was exposed to the risk that the borrower might fail

to repay the loan. As such, the loan originator had a financial incentive to ensure that the

borrower had the financial wherewithal to repay the loan, and that the underlying property had

sufficient value to enable the originator to recover its principal and interest in the event that the

borrower defaulted.

       73.     Beginning in the 1990s, however, banks and other mortgage lending institutions

increasingly used securitization to finance the extension of mortgage loans to borrowers. Under

the securitization process, after a loan originator issues a mortgage to a borrower, the loan

originator sells the mortgage to a third-party financial institution. By selling the mortgage, the

loan originator not only obtains fees, but receives the proceeds from the sale of the mortgage up

front, and thereby has new capital with which to issue more mortgages.                The financial

institutions which purchase the mortgages then pool the mortgages together and securitize the

mortgages into what are commonly referred to as residential mortgage-backed securities or

RMBS. In this manner, unlike the traditional process for extending mortgage loans, the loan

originator is no longer subject to the risk that the borrower may default; that risk is transferred

with the mortgages to investors who purchase the RMBS.




                                                 23
       74.        The securitization of residential mortgage loans, and the creation of RMBS

collateralized against these loans, typically follows the same structure and pattern in each

transaction. First, a loan originator, such as a mortgage lender or bank, originates the underlying

residential mortgage loans. After a loan has been made, a “sponsor” or “seller” (who either

originated the loans itself or acquired the loans from other loan originators) sells the mortgage

loans to a “depositor.” The depositor pools these loans and deposits them into a special purpose

entity or trust created by the depositor. One trust is established to hold the pool of mortgages for

each proposed offering. In order to facilitate multiple offerings of RMBS, a depositor sets up

multiple trusts to hold the different pools of mortgages that are to be securitized. With respect to

each offering, in return for the pool of mortgages acquired from the depositor, the trust issues

and distributes RMBS certificates to the depositor.         The depositor then works with an

underwriter to price and sell the certificates to investors. Thereafter, a servicer is appointed to

service the mortgage loans held by the trust, i.e., to collect the mortgage payments from the

borrower in the form of principal and interest, and to remit them to the trust for administration

and distribution to the RMBS investors. The diagram below illustrates the typical structure of a

securitization:




                   [BOTTOM OF PAGE INTENTIONALLY LEFT BLANK]




                                                24
       75.     In selling the certificates to investors, the depositor and underwriters disseminate

to investors various disclosure or offering documents describing the certificates being sold. The

offering documents comprise: (1) a “shelf” registration statement (under SEC Rule 415, an issuer

may file one registration statement covering several offerings of securities made during a period

of up to three years after the filing of the registration statement); (2) a “base” prospectus (3) a

“prospectus supplement”; and (4) a post-filing free writing prospectus, which may include

information the substance of which is not included in the registration statement. Because a

depositor will create a different trust for each offering of RMBS (as described above), the

depositor files one shelf registration statement and one base prospectus that apply to multiple

trusts that the depositor proposes to establish. With respect to each specific trust, however, the

depositor also files a prospectus supplement that applies only to that particular trust. Thus, for

any given offering of securities, the relevant offering documents will typically be a shared


                                                25
registration statement and shared base prospectus, as well as an individual, trust-specific

prospectus supplement, and sometimes a free-writing prospectus.

          76.   Each investor who purchases an RMBS certificate is entitled to receive monthly

payments of principal and interest from the trust. The order of priority of payment to each

investor, the interest rate to be paid to each investor, and other payment rights accorded to each

investor depend on which class or tranche of certificates the investor purchases.

          77.   The highest or senior tranche is the first to receive its share of the mortgage

payments and is also the last to absorb any losses should mortgage borrowers become delinquent

or default on their mortgages. Accordingly, these senior tranches receive the highest investment

rating by the rating agencies, usually Aaa. After the senior tranche, the middle tranches (referred

to as mezzanine tranches) next receive their share of the proceeds. These mezzanine tranches are

generally rated from Aa2 to Ba2 by the rating agencies. The process of distributing the mortgage

proceeds continues down the tranches through to the bottom tranches, referred to as equity

tranches. This process is repeated each month and all investors receive the payments owed to

them so long as the mortgage borrowers are current on their mortgages. All Certificates were

also overcollateralized so payments could be made in the event that mortgage borrowers fell

behind.

II.       THE SECURITIZATIONS ASSOCIATED WITH THE PLAINTIFF’S
          CERTIFICATES AND ITS INVESTMENTS IN THE CERTIFICATES

          A.    JPMORGAN TRUSTS

          78.   The Certificates that Plaintiff purchased from JPMorgan Trusts were structured

and sold by JPMorgan. The depositor that created the Issuing Trusts was a JPMorgan entity,

Defendant JPM Acceptance.        The sponsor and/or seller for the Issuing Trusts was also a

JPMorgan entity, specifically, Defendant JPMM Acquisition. In addition, the underwriter was



                                                26
another JPMorgan entity, Defendant JPMS. As such, the vast majority of the transactions among

the sponsor/seller, depositor, underwriter and the Issuing Trusts were not arm’s-length

transactions, as JPMorgan Chase controlled all the entities. This vertical integration allowed

JPMorgan Chase to both control and manipulate the loan-level documentation and specifically to

ensure that loans would be approved by its in-house loan underwriters.

        79.     In connection with its role as depositor for the JP Morgan Trusts that are the

subject of this action, Defendant JPM Acceptance prepared and filed with the SEC the following

shelf registration statements, to which registration statements the Certificates purchased by

Plaintiff are traceable:

                                        JPMorgan Trusts

    Registration Statement                 Date Filed                    Amount Registered
         333-130192                        3/31/2006                      $55,957,035,908
          333-141607                        4/23/2007                     $54,817,583,388

        B.      BEAR STEARNS TRUSTS

        80.     The Certificates Plaintiff purchased from the Bear Stearns Trusts were structured

and sold by Bear Stearns. The depositors that created the Issuing Trusts were Bear Stearns

entities: Defendants BSABS and SAMI. The sponsor and/or seller for the Issuing Trusts was

also a Bear Stearns entity, specifically, Defendant EMC. In addition, Bear Stearns underwrote

its own offerings. As such, the vast majority of the transactions among the sponsor/seller,

depositor, underwriter, and the Issuing Trusts were not arm’s-length transactions, as Bear Stearns

controlled all the entities. This vertical integration allowed Bear Stearns to both control and

manipulate the loan-level documentation and specifically to ensure that loans would be approved

by its in-house loan underwriters.




                                               27
       81.     In connection with their role as the depositors for the Bear Stearns Trusts that are

the subject of this action, Defendants BSABS and SAMI prepared and filed with the SEC the

following shelf registration statements, to which registration statements the Certificates

purchased by Plaintiff are traceable:

                                        Bear Stearns Trusts

   Registration Statement                   Date Filed                  Amount Registered
            333-115122                         5/11/2004                    $25,000,000,000

             333-125422                         6/14/2005                     $35,000,000,000

             333-131374                         3/31/2006                     $50,000,000,000


       C.      WAMU AND LONG BEACH TRUSTS

       82.     The Certificates Plaintiff purchased from the WaMu Trusts were structured and

sold by WaMu and Long Beach. The depositors that created the Issuing Trusts were WaMu

entities: Defendants WAAC and LBSC. The sponsor and/or seller for the Issuing Trusts were

also WaMu entities, specifically, Defendant WMMSC or non-defendant WaMu Bank.                   In

addition, another WaMu entity, Defendant WaMu Capital, was an underwriter for each of the

Issuing Trusts. As such, the vast majority of the transactions among the sponsor/seller, depositor

and the Issuing Trusts were not arm’s-length transactions, as WaMu controlled all the entities.

Similarly, this vertical integration allowed WaMu to both control and manipulate the loan-level

documentation and to ensure that loans would be approved by its in-house loan underwriters.

       83.     In connection with their role as the depositors for the WaMu Trusts that are the

subject of this action, Defendants WAAC and LBSC prepared and filed with the SEC the

following shelf registration statements, to which registration statements the Certificates

purchased by Plaintiff are traceable:




                                                28
                                    WaMu and Long Beach Trusts

     Registration Statement                    Date Filed                   Amount Registered
          333-130795                           1/3/2006                     $100,000,000,000
           333-131252                          3/31/2006                         $1,000,0003
           333-141255                          4/9/2007                      $400,000,000,000

         84.      At the time of filing, each Registration Statement, identified in ¶ 85, above

contained an illustrative form of a prospectus supplement that would be used in the various

offerings of Certificates.     At the effective date of a particular offering of Certificates, the

Underwriter Defendants prepared and filed a final Prospectus Supplement with the SEC

containing a description of the mortgage pool for that particular offering of Certificates, and the

underwriting standards by which the mortgages were originated. The Underwriter Defendants

then marketed and sold the Certificates pursuant to these Prospectus Supplements.

         85.      The following chart summarizes and identifies (1) each Issuing Trust that issued

and sold the Certificates purchased by Plaintiff; (2) the dates of the Registration Statements and

Prospectus Supplements pursuant to which ABP purchased the Certificates; and (3) the identities

of the depositor, the issuer, underwriters, and the sponsor/seller for each offering.


    Amended                               Prospectus
                                                                                           Sponsor/
   Registration         Issuing Trust     Supplement       Depositor   Underwriter(s)
                                                                                            Seller
File No. and Date                           Date




                     Bear Stearns ALT-A
    333-115122                             7/1/2004         SAMI          Bear Stearns         EMC
    (5/11/2004)         Trust 2004-6



3
        The minimum size for a single issuer RMBS pool is one million dollars for fixed-rate
securities. According to the Registration Statement, the one million dollar figure is used “solely
for the purpose of calculating the registration fee.” Despite diligent research, the actual amount
of securities issued to ABP pursuant to the relevant Registration Statement is unknown.


                                                      29
    Amended                                 Prospectus
                                                                                             Sponsor/
   Registration         Issuing Trust       Supplement       Depositor   Underwriter(s)
                                                                                              Seller
File No. and Date                             Date




  333-125422        SACO I Trust 2005-5     8/19/2005         BSABS        Bear Stearns       EMC
  (6/14/2005)




                     Washington Mutual
                        Pass-Through
                                            12/27/2006        WAAC         WaMu Capital      WMMSC
                    Certificates, WMALT
                     Series 2006-AR10



                     WaMu Asset-Backed                                     WaMu Capital
                      Certificates WaMu     1/16/2007         WAAC                          WaMu Bank
                    Series 2007-HE1 Trust                                 Banc of America



                     Washington Mutual
                        Pass-Through
  333-130795                                1/29/2007         WAAC         WaMu Capital      WMMSC
   (1/3/2006)       Certificates, WMALT
                      Series 2007-HY1


                      Washington Mutual
                         Asset-Backed
                                             3/9/2007         WAAC         WaMu Capital      WMMSC
                     Certificates WMABS
                    Series 2007-HE2 Trust

                                                                           WaMu Capital
                     WaMu Asset-Backed
                                                                             Lehman
                      Certificates WaMu      4/6/2007         WAAC                          WaMu Bank
                                                                             Brothers
                    Series 2007-HE2 Trust
                                                                          Banc of America


                                                                           WaMu Capital
  333-131252
  (3/31/2006)       Long Beach Mortgage                                      Lehman
                                            7/25/2006         LBSC           Brothers       WaMu Bank
                     Loan Trust 2006-6

                                                                           Credit Suisse




                                                        30
    Amended                                Prospectus
                                                                                         Sponsor/
   Registration        Issuing Trust       Supplement    Depositor   Underwriter(s)
                                                                                          Seller
File No. and Date                            Date


                                                                       WaMu Capital
                    Long Beach Mortgage
                                           10/10/2006     LBSC                          WaMu Bank
                     Loan Trust 2006-9                                Banc of America



                                                                       WaMu Capital
                    Long Beach Mortgage
                                           12/13/2006     LBSC                          WaMu Bank
                     Loan Trust 2006-11                               Goldman Sachs



                                                                       WaMu Capital
                    Long Beach Mortgage
                                           11/7/2006      LBSC                          WaMu Bank
                     Loan Trust 2006-10                                  Lehman
                                                                         Brothers




                     Bear Stearns Asset
  333-131374
                     Backed Securities I   8/30/2006      BSABS        Bear Stearns       EMC
  (3/31/2006)
                      Trust 2006-HE7



                     Bear Stearns Asset
                     Backed Securities I   12/1/2006      BSABS        Bear Stearns       EMC
                      Trust 2006-HE9



                     Bear Stearns Asset
                     Backed Securities I   1/31/2007      BSABS        Bear Stearns       EMC
                      Trust 2007-HE1



                     Bear Stearns Asset
                     Backed Securities I   2/28/2007      BSABS        Bear Stearns       EMC
                      Trust 2007-HE2




                                                    31
    Amended                                   Prospectus
                                                                                              Sponsor/
   Registration         Issuing Trust         Supplement       Depositor    Underwriter(s)
                                                                                               Seller
File No. and Date                               Date


                     Bear Stearns Asset
                     Backed Securities I       4/2/2007         BSABS         Bear Stearns     EMC
                      Trust 2007-HE3



                     Bear Stearns Asset
                     Backed Securities I      4/27/2007         BSABS         Bear Stearns     EMC
                      Trust 2007-HE4



                      Bear Stearns Asset
                      Backed Securities       5/18/2007         BSABS         Bear Stearns     EMC
                        Trust 2007-2



                     Bear Stearns Asset
                     Backed Securities I      5/30/2007         BSABS         Bear Stearns     EMC
                      Trust 2007-HE5




                         J.P. Morgan
                                                                  JPM                          JPMM
                    Acquisition Trust 2006-   9/28/2006                          JPMS
                                                               Acceptance                    Acquisition
                             RM1



                         J.P. Morgan
                                                                  JPM                          JPMM
  333-130192        Acquisition Trust 2006- 11/13/2006                           JPMS
                                                               Acceptance                    Acquisition
   (4/3/2006)                HE3



                         J.P. Morgan
                                                                  JPM                          JPMM
                    Acquisition Trust 2006- 12/20/2006                           JPMS
                                                               Acceptance                    Acquisition
                            WMC4




                                                          32
    Amended                                   Prospectus
                                                                                           Sponsor/
   Registration         Issuing Trust         Supplement    Depositor    Underwriter(s)
                                                                                            Seller
File No. and Date                               Date


                      Washington Mutual
                         Pass-Through
   333-141255                                 6/26/2007      WAAC          WaMu Capital   WMMSC
    (4/9/2007)       Certificates, WMALT
                       Series 2007-OC2




                    J.P. Morgan Acquisition                    JPM                          JPMM
                                                5/11/2007                     JPMS
                        Trust 2007-CH3                      Acceptance                    Acquisition

   333-141607
   (4/23/2007)
                    J.P. Morgan Acquisition                    JPM                          JPMM
                                                6/15/2007                     JPMS
                        Trust 2007-CH4                      Acceptance                    Acquisition




III.    IMPORTANT FACTORS IN THE DECISION OF INVESTORS SUCH AS
        PLAINTIFF TO INVEST IN THE CERTIFICATES

        86.      In purchasing the Certificates, Plaintiff, like other investors, attached critical

importance to: (a) the underwriting standards used to originate the loans underlying the

Certificates; (b) the appraisal methods used to value the properties securing the underlying

mortgage loans; (c) the ratings assigned to the Certificates; (d) the ability of the Issuing Trusts to

establish legal title to the underlying loans; and (e) the level of credit enhancement applicable to

the Certificates.

        87.      Sound underwriting was critically important to Plaintiff because the ability of

borrowers to repay principal and interest was the fundamental basis upon which the investments

in the Certificates were valued. Reflecting the importance of the underwriting standards, the

Offering Documents contained representations concerning the standards purportedly used to

originate the mortgages held by the Issuing Trusts.


                                                      33
       88.     For example, the April 23, 2007 Registration Statement issued by Defendant JPM

Acceptance stated that: “Underwriting standards are applied by or on behalf of a lender to

evaluate a borrower’s credit standing and repayment ability, and the value and adequacy of the

related mortgaged property as collateral. In general, a prospective borrower applying for a loan

is required to fill out a detailed application designed to provide to the underwriting officer

pertinent credit information. As part of the description of the borrower’s financial condition, the

borrower generally is required to provide a current list of assets and liabilities and a statement of

income and expenses...”

       89.     With respect to loans acquired from third-party originators, the Offering

Documents represented that stated underwriting guidelines required them to consider, among

other things, the mortgagor’s credit history, repayment ability, and debt-to-income ratio, as well

as the type and use of the mortgaged property. In addition, the Offering Documents represented

that in order to submit loan packages, the loans must have been made in compliance with the

terms of a signed mortgage loan purchase agreement.

       90.     Independent and accurate real estate appraisals were also critically important to

investors such as Plaintiff because they ensured that the mortgage loans underlying the

Certificates were not under-collateralized, thereby protecting RMBS investors in the event a

borrower defaulted on a loan. As such, by allowing RMBS investors to assess the degree to

which a mortgage loan was adequately collateralized, accurate appraisals provided investors such

as ABP with a basis for assessing the price and risk of the Certificates.

       91.     One measure that uses the appraisal value to assess whether mortgage loans are

under-collateralized is the loan-to-value (“LTV”) ratio.       The LTV ratio is a mathematical

calculation that expresses the amount of a mortgage as a percentage of the total value of the




                                                 34
property, as obtained from the appraisal. For example, if a borrower seeks to borrow $900,000

to purchase a house worth $1,000,000, the LTV ratio is $900,000/$1,000,000, or 90%. If,

however, the appraised value of the house is artificially increased to $1,200,000, the LTV ratio

misleadingly drops to just 75% ($900,000/$1,200,000).

        92.    The Prospectus Supplement for J.P. Morgan Mortgage Acquisition Trust 2007-

CH4, one of the Certificates purchased by Plaintiff, provided the following representations

regarding the underlying assets.




Id. at 36.

        93.    Thus, fewer than 3% of the loans were represented to have an LTV greater than

95% and fewer than 10% total had LTV ratios greater than 90%, providing the appearance of a

conservative portfolio.

        94.    From a lender’s perspective, the higher the LTV ratio, the riskier the loan because

it indicates the borrower has a lower equity stake, and a borrower with a lower equity position

has less to lose if s/he defaults on the loan. The LTV ratio is a significant measure of credit risk,

because both the likelihood of default and the severity of loss are higher when borrowers have

less equity to protect in the event of foreclosure. Worse, particularly in an era of falling housing


                                                 35
prices, a high LTV ratio creates the heightened risk that, should the borrower default, the amount

of the outstanding loan may exceed the value of the property.

       95.     As stated above, real estate appraisals are governed by USPAP, which are the

generally accepted standards for professional appraisal practice in North America promulgated

by the Appraisal Standards Board of the Appraisal Foundation, as authorized by Congress. With

respect to real estate appraisals, USPAP requires the following:

               An appraiser must perform assignments with impartiality,
               objectivity, and independence, and without accommodation of
               personal interests.

               In appraisal practice, an appraiser must not perform as an
               advocate for any party or issue.

               An appraiser must not accept an assignment that includes the
               reporting of predetermined opinions and conclusions.

                                            *****

               It is unethical for an appraiser to accept an assignment, or to
               have a compensation arrangement for an assignment, that is
               contingent on any of the following:

               1.     the reporting of a predetermined result (e.g., opinion of
                      value);

               2.     a direction in assignment results that favors the cause of the
                      client;

               3.     the amount of a value opinion;

               4.     the attainment of a stipulated result; or

               5.     the occurrence of a subsequent event directly related to the
                      appraiser’s opinions and specific to the assignment’s
                      purpose.

       96.     Reflecting the importance of independent and accurate real estate appraisals to

investors such as Plaintiff, the Offering Documents contained extensive disclosures concerning




                                               36
the value of the collateral underlying the mortgages pooled in the Issuing Trusts and the

appraisal methods by which such values were obtained.

       97.     For example, the Offering Documents represented that the property securing the

mortgages was to be appraised by a qualified, independent appraiser in conformity with USPAP

or that each appraisal was required to satisfy applicable government regulations and be on forms

acceptable to Fannie Mae and Freddie Mac.

       98.     In addition, the Prospectus Supplements represented that the appraisal procedure

guidelines used by the loan originators required an appraisal report that included market data

analyses based on recent sales of comparable homes in the area. If appropriate, the guidelines

required a review appraisal, consisting of an enhanced desk or field review, or automated

valuation report confirming or supporting the original appraisal value of the mortgaged property.

       99.     The rating assigned to each of the Certificates was another important factor in

ABP’s decision to purchase the Certificates. ABP and other investors relied on the ratings as an

indicator of the safety and likelihood of default of the mortgage loans underlying a particular

Certificate. Consistent with its conservative corporate investment guidelines, ABP purchased the

Certificates because they all were rated Aaa.

       100.    In purchasing the Certificates, ABP relied on the ability of each of the Issuing

Trusts to demonstrate that it in fact had legal title to the underlying mortgage loans. ABP would

never have purchased any of the Certificates from Defendants if there was any doubt as to

whether the Issuing Trusts had legal title to any of the mortgage loans that were pooled for each

offering.

       101.    Finally, the Prospectus Supplements contained representations regarding the level

of credit enhancement, or loss protection, associated with the Certificates. Credit enhancements




                                                37
impact the overall credit rating that a Certificate receives. The amount of credit enhancements

built into the Certificates purchased by Plaintiff was overstated, which exposed ABP to

additional losses. These levels of credit enhancement were material to ABP.

IV.    DEFENDANTS KNEW THAT A LARGE PERCENTAGE OF THE MORTGAGE
       LOANS UNDERLYING PLAINTIFF’S CERTIFICATES WERE MADE AS A
       RESULT OF THE SYSTEMATIC ABANDONMENT OF PRUDENT
       UNDERWRITING GUIDELINES AND APPRAISAL STANDARDS

       102.    Prior to underwriting and selling the Certificates to investors like ABP,

Defendants had identified but failed to disclose the widespread underwriting and appraisal

deficiencies by the mortgage originators described below, many of which were, in fact, owned

by or affiliated with Defendants. This was in direct contrast to the representations in the

Offering Documents accompanying the Certificates sold to ABP.

       103.    As has now come to light, contrary to the representations in the Offering

Documents, Defendants JPMorgan Bank and EMC, non-defendants Encore, Long Beach, and

WaMu Bank, as well as the third-party originators that originated the mortgages underlying the

Certificates, knowingly departed from the underwriting standards that were represented in the

Offering Documents.

       104.    In the early 2000s, an unprecedented boom in the housing market began to unfold.

Between 1994 and 2004, the housing market experienced a dramatic rise in home ownership, as

12 million more Americans became homeowners. Likewise, the subprime market, that is, the

market for credit that is lent to people of questionable or limited credit histories, grew

dramatically, enabling more and more borrowers to obtain credit who traditionally would have

been unable to access it.    According to INSIDE MORTGAGE FINANCE, from 1994 to 2006,

subprime lending increased from an estimated $35 billion, or 4.5% of all one-to-four family

mortgage originations, to $600 billion, or 20% of originations.



                                               38
       105.    To ride this housing boom, Wall Street financial firms aggressively pushed into

the complex, high-margin business of securitization, i.e., packaging mortgages and selling them

to investors as RMBS. This aggressive push created a boom for the mortgage lending industry.

Mortgage originators generated profits primarily through the sale of their loans to investment

banks like JPMorgan Chase, Bear Stearns, and Washington Mutual, and the originators were

therefore driven to originate and sell as many loans as possible. Increased demand for mortgages

by banks like JPMorgan Chase, Bear Stearns, and Washington Mutual led to increased volume in

mortgage originations. That increased volume, in turn, led to a decrease in the gain-on-sale

margins that mortgage originators received from selling pools of loans. As a result, originators

began to borrow money from the same large banks that were buying their mortgages in order to

fund the origination of even more mortgages. By buying and packaging mortgages, Wall Street

firms enabled the lenders to extend credit even as the dangers grew in the housing market.

Indeed, according to the FBI’s 2006 Mortgage Fraud Report, a fraud analytics company analyzed

more than 3 million loans and found that between 30 and 70 percent of early payment defaults

were linked to significant misrepresentations in the original loan applications.

       106.    In the instant action, the players that structured the Certificates purchased by

Plaintiff were JPMorgan Chase, Bear Stearns, and Washington Mutual, and their affiliated

entities. Defendants embarked on a scheme to profit from the housing boom by acquiring or

partnering with subprime lenders, such as the Originators described in ¶¶ 241-325, infra, and

then directing or encouraging these lenders to originate and purchase large numbers of mortgage

loans, regardless of the borrower’s ability to pay, so that the loans could then be quickly flipped

at a profit on to an unsuspecting secondary market (that is, RMBS investors such as Plaintiff).




                                                39
       107.    Defendants reaped massive profits from their activities in the RMBS space during

the U.S. housing boom. At nearly every stage in the mortgage securitization process, Defendants

garnered enormous profits—pocketing the difference between what they paid for a pool of

mortgage loans and what they received from selling those loans into a securitization; from

collecting underwriting fees and commissions from selling the RMBS they had securitized to

investors; to earning interest and fees from the warehouse lending arrangements they established

with subprime originators to facilitate the issuance of the loans underlying those securities.

       108.    As a result of these efforts, between 2000 and 2007, WaMu and Long Beach

together securitized approximately $77 billion in subprime loans.           Starting in 2003, the

JPMorgan Defendants increased their origination and securitization of mortgage loans

extensively. During the 2003, 2004, 2005,and 2006 fiscal years, JPMM Acquisition, the issuer

for every JPMorgan Chase Certificate at issue in the case, securitized approximately $545

million, $5 billion, $2.1 billion, and $40.6 billion of residential mortgage loans, respectively.

Moreover,     the securitization of residential mortgage loans by Defendant JPM Acceptance

increased by more than five times between 2004 and 2005, from approximately $4.5 billion to

$24 billion. Likewise, from 2003 to 2004, the securitization of mortgage loans by the Bear

Stearns Defendants, mainly through Defendant EMC, increased by almost three times from

86,000 loans to 230,000 loans. This represented an increase from approximately $20 billion to

$48 billion. In 2005, the amount of mortgage loans securitized by EMC increased to 389,000

loans valued at almost $75 billion. In 2006, more than 345,000 loans were securitized by the

EMC, valued at nearly $69 billion. Overall, from 2003 to 2007, Defendant EMC purchased and

securitized more than one million mortgage loans originally valued at over $212 billion.




                                                 40
       109.   Defendants had direct insight into the true -- very poor -- quality of the loans

underlying the Certificates they issued to Plaintiff ABP. This is evidenced by Defendants’

financial relationships with the third-party originators, such as through warehouse lending

arrangements, and is most prominently evidenced by their origination of badly defective loans

through their own mortgage origination units, including Defendants JPMorgan Bank and EMC,

and non-defendants Encore, Long Beach, and WaMu Bank. Additionally, Defendants were

aware of the scope of the poorly underwritten loans in the RMBS they issued through their roles

as sponsors of RMBS and their roles as RMBS trustees.

       110.   Instead of disclosing the true nature of these loans to investors such as Plaintiff

ABP, however, Defendants routinely placed defective loans into securitizations to be sold to

investors in order to reap enormous fees with no perceived risk and, at times, to eliminate loans

from their own balance sheets that they knew would decline in value.

       A.     DEFENDANT JPMORGAN CHASE ABANDONED UNDERWRITING STANDARDS AND
              APPRAISAL GUIDELINES IN ITS VERTICALLY INTEGRATED SECURITIZATION
              PROCESS

       111.   JPMorgan Chase had ample information about the sorry state of the loans that it

was securitizing. Its retail operations gave JPMorgan Chase a window into the fraud and abuses

that were prevalent in the mortgage market, and JPMorgan’s due diligence vendor told it about

underwriting failures in the loans that it had purchased. Indeed, the misrepresentations in

JPMorgan’s Offering Documents were so pervasive that JPMorgan Chase either knew or

recklessly disregarded such misrepresentations. JPMorgan Chase executives understood that its

RMBS were deeply unstable investments, but nonetheless continued to market them as

investment-grade securities.

       112.   JPMorgan Chase’s practices, including the subjects of the false statements,

misrepresentations and omissions in the Offering Documents, have been and continue to be a


                                               41
part of multiple federal investigations and proceedings. On May 12, 2010, the WALL STREET

JOURNAL reported that federal prosecutors, working with the SEC, had begun the early stages of

a criminal probe into whether several Wall Street banks, including JPMorgan Chase, “misled

investors about their roles in mortgage-bond deals.” The article also stated that JPMorgan Chase

was among several banks to receive a civil subpoena from the SEC. On June 21, 2011, the

WALL STREET JOURNAL reported that JPMorgan Chase agreed to pay $153.6 million to settle

charges that it “failed to disclose to investors in a $1.1 billion synthetic collateralized debt

obligation (“CDO”) in early 2007 that Illinois-based hedge fund Magnetar Capital LLC helped

pick the assets underpinning the CDO portfolio and stood to profit if they defaulted.” According

to the article, JPMorgan Chase, instead of shutting down the deal and taking a $40 million mark-

to-market loss, initiated an aggressive selling campaign to “move early losses on the deal to other

investors.” When its traditional investors were not interested, the article explains, JPMorgan

Chase rushed to shed $40 million in early losses to outside investors, urging its salespeople to

make selling this deal the “top priority from the top of the bank all the way down.” This is

further evidence of a pattern and practice of JPM doing whatever it had to do to protect itself,

even at the expense of investors.

               1.     JPMorgan Chase Disregarded Underwriting Guidelines and
                      Appraisal Standards In Its Own Mortgage Lending Operations

       113.    To maximize profits and ensure control over each aspect of the securitization

process, from origination through securitization and sale to investors, such as Plaintiff ABP,

JPMorgan Chase maintained a vertically integrated operation. One way JPMorgan Chase kept

the securitization machine running was by directing its own affiliated mortgage loan originators

to churn out loans as quickly as possible with increasingly less concern for satisfying

underwriting guidelines or obtaining independent appraisals.         JPMorgan Bank originated



                                                42
mortgages, either directly or through an affiliate, that were included in Issuing Trusts from which

Plaintiff purchased Certificates.

       114.    James Theckston, a former regional vice president for the JPMorgan subsidiary

Chase Home Finance, LLC (“Chase”) in southern Florida, was interviewed regarding Chase’s

lending and securitization practices for a November 30, 2011 NEW YORK TIMES article, “A

Banker Speaks, With Regret.” Theckston’s team wrote $2 billion in mortgages in 2007 alone.

According to Theckston, Chase engaged in high-risk lending practices such as making no-

documentation loans to borrowers with insufficient resources. “On the application, you don’t put

down a job; you don’t show income; you don’t show assets; but you still got a nod,” he said. “If

you had some old bag lady walking down the street and she had a decent credit score, she got a

loan… You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip

it. It was crazy, but the banks put programs together to make those kinds of loans.”

       115.    These excesses were driven by JPMorgan’s vertically integrated securitization

business model. “The bigwigs of the corporations knew [about declining lending standards], but

they figured we’re going to make billions out of it, so who cares?” Theckston said. “The

government is going to bail us out. And the problem loans will be out of here, maybe even

overseas.” Because risky loans were securitized and sold to investors such as Plaintiff, Chase

created incentive structures that rewarded risky lending.      Theckston said that some Chase

account executives earned commissions seven times higher from subprime loans rather than

prime mortgages. As a result, those executives looked for unsophisticated borrowers with less

education or limited English abilities and convinced them to take out subprime loans.

Theckston’s own 2006 performance review indicated that 60% of his evaluation depended on

him increasing the production of high-risk loans.




                                                43
       116.    According to the Federal Home Loan Bank of Boston (“FHLBB”) investigation

into the origination practices of JPMorgan Bank, a senior underwriter at JPMorgan Bank stated

that managers “often overturned the decisions of lower-level underwriters to reject stated-income

loans … If the manager felt the income made sense and the underwriter didn’t, the manager

could overturn it.” FHLBB has interviewed a number of former loan personnel at Chase. One

witness, a loan processor and assistant to the branch manager at a Florida branch of Chase from

April 2006 until August 2007, noted that many employees inflated borrowers’ income on orders

from the branch manager to get loans approved, saying, “It was very common to take stuff out of

the loan file.” Loan officers would often bring their loans to the branch manager for instructions

on what the stated income should be to make a loan close. Branch managers would also call the

regional managers above them for instructions on problem loans.

       117.    Another witness, a senior loan underwriter at Chase from December 2004 to

August 2005, said that Chase loan personnel knowingly permitted borrowers to submit false

income data, saying that, “[y]ou’d see self-employed people, like a landscaper, who stated they

made $10,000 a month.” When borrowers stated unreasonable income levels, management

would push the loans through regardless. The witness said that in addition to being told to accept

unreasonable stated incomes, employees were not permitted to question appraisals that appeared

to be inflated. He recalled a subdivision in California in which Chase accepted appraisal values

that were double the sales prices of identical homes sold just a few months ago.

       118.    According to an investigation of the origination practices of Chase by Plumbers’

& Pipefitters’ Local #562 Supplemental Plan & Trust, a former senior underwriter from March

2002 through January 2008 at Chase, said that when processing loans that required verification

of assets, “we really were not verifying them, what we would do is look to see if a borrower was




                                               44
making, say $15,000 a month, if that’s [what] they were listing. We would hope to see assets

that would compare to or be comparable to that type of income.”

       119.    Additionally, according to one witness, a former senior processor, junior

underwriter, and compliance controller who worked at Chase between December 2002 and

October 2007, loan processors weren’t provided with all of the relevant borrower information:

“there was some information that was being withheld from us.”

       120.    JPMorgan’s fraudulent origination and purchasing practices are also evidenced by

information obtained from Allstate Insurance Company (“Allstate”), the Federal Housing

Finance Agency, acting as conservator for Fannie Mae and Freddie Mac (the “FHFA”), and

Massachusetts Mutual Life Insurance Company (“Mass Mutual”).              Each of these entities

conducted loan-level analyses of JPMorgan-issued RMBS that they had purchased. As discussed

more fully below, these forensic analyses, which covered thousands of individual mortgage

loans, found substantial breaches of the representations and warranties in the relevant prospectus

supplements, particularly with respect to LTV ratios and owner-occupancy statistics.          On

information and belief, the mortgages that JPMorgan and its subsidiaries sold to Allstate, Fannie

Mae/Freddie Mac and Mass Mutual were originated through substantially the same channels and

methods as the mortgages underlying Plaintiff’s Certificates.

       121.    Additionally, according to documents provided to the FCIC, as of August 31,

2010, Fannie Mae has required JPMorgan to repurchase 6,456 loans originated by its subsidiaries

JPMorgan Bank and Chase with an unpaid principal balance of $1.359 billion. Fannie Mae has

also requested that JPMorgan repurchase an additional 1,561 JPMorgan Bank and Chase loans

with an outstanding principal balance of $345 million. Likewise, between 2007 and August 31,




                                               45
2007, Freddie Mac required JPMorgan to repurchase 5,427 Chase loans with an unpaid principal

balance of $1.188 billion.

        122.    In a March 27, 2008 article,            THE   OREGONIAN revealed that an internal

memorandum circulated at Chase provided employees with information on how to fraudulently

game ZiPPy, Chase’s in-house automated loan underwriting system. The memorandum, aptly

titled “ZiPPy Cheats & Tricks,” cheerfully encouraged loan personnel to inflate borrower

incomes and enter false information into the program to “get the findings you need.”           It

specifically recommended the following three “handy steps” for getting stated-income loans with

LTV ratios of up to 100% approved:

                1.      Make sure you input all income in base income. DO NOT
                break it down by overtime, commissions or bonus.

                2.      If your borrower is getting a gift, add it to a bank account
                along with the rest of the assets. Be sure to remove any mention of
                gift funds.

                3.      If you do not get [the desired results], try resubmitting with
                slightly higher income. Inch it up $500 to see if you can get the
                findings you want. Do the same for assets.

        123.    The memorandum noted that manipulating Chase’s underwriting software was not

difficult, stating, “It’s super easy! Give it a try!”

        124.    In testimony before the FCIC, JPMorgan Chase CEO Jamie Dimon (“Dimon”)

admitted that JPMorgan Chase’s underwriting standards “should have been higher.” He also

testified that before the collapse of the housing bubble, JPMorgan Chase “misjudged the impact

of more aggressive underwriting standards” and that JPMorgan Chase “should have acted sooner

and more substantially to reduce the loan-to-value ratios.”




                                                  46
               2.     JPMorgan Chase Management Was Aware That Third Party
                      Originators Were Abandoning Their Underwriting Guidelines and
                      Appraisal Standards

       125.    During the housing boom, JPMorgan Chase, and other issuers of RMBS hired

Clayton Holdings Inc. (“Clayton”) to conduct due diligence to review whether the loans to be

included in a particular RMBS offering complied with the law and met the lending standards that

mortgage companies said that they were using. Clayton’s Form 10-K filed on March 14, 2008,

represented that Clayton provides “services to the leading buyers and sellers of, and investors in,

residential and commercial loan portfolios and securities … includ[ing] major capital markets

firms, banks and lending institutions, including the largest MBS issuers/dealers.”

       126.    On September 23, 2010, hearings were held by the FCIC in Sacramento,

California.   Part of the hearings involved the role that Clayton played in the mortgage

securitization process. Clayton’s current Senior Vice President of Transaction Management

Vicki Beal (“Beal”) suggested that, rather than directing due diligence firms to conduct thorough

portfolio reviews that would most likely identify defective loans, the investment banks, such as

JPMorgan Chase, pressured loan reviewers to disregard the problematic loans through the use of

exceptions and offsets, even in cases where such practices did not satisfy the applicable

underwriting guidelines.

       127.    Clayton reviewed 911,000 loans for 23 investment or commercial banks,

including JPMorgan Chase (“Trending Report”). The Trending Report covered roughly 10% of

the total number of mortgages Clayton was contracted to review. Clayton graded each loan for

credit and compliance by using the following grading scale: Event 1, loans that meet guidelines;

Event 2, loans that do not meet guidelines but have sufficient compensating factors; and Event 3,

loans that do not meet guidelines and have insufficient compensating factors.




                                                47
          128.   Of the mortgage loans reviewed, only 54% met the lenders’ underwriting

standards. About 28% of the loans sampled were initially rejected, as they were unable to meet

numerous underwriting standards. According to the testimony of Beal and D. Keith Johnson, the

former President and Chief Executive Officer of Clayton, however, 39% of these troubled loans

were waived back into the mortgage pools and sold to investors like Plaintiff ABP during the

period.

          129.   Clayton provided a trending report which contained the rejection and waiver rates

for the loans that were pooled into RMBS by JPMorgan Chase and sold to investors such as

Plaintiff. Clayton found that of the JPMorgan securitized loans that Clayton reviewed for

underwriting compliance, 27% neither met underwriting guidelines nor possessed compensating

factors to justify an exception to be included into securitizations (Event 3). However, JPMorgan

Chase ignored many of these underwriting failures and waived 51% of those rejected loans back

into its mortgage pools – the highest waiver rate of any of the 23 institutions that Clayton

analyzed – and sold RMBS containing these non-compliant loans to investors like Plaintiff

ABP.

          130.   In their capacity as the underwriters for all of the Certificates purchased by ABP,

Defendants JPMS, BSC, WaMu Capital, Banc of America, and Credit Suisse had an obligation

to conduct due diligence regarding the accuracy and completeness of the Offering Documents

prior to their dissemination to investors such as ABP. In connection with that due diligence

process, the Underwriter Defendants had access to various sources of information, including the

Clayton Report, which should have alerted them to the various originators’ systematic and

widespread abandonment of stated underwriting guidelines and appraisal methods.                 The

Underwriter Defendants were supposed to play a “gatekeeper” role for public investors like




                                                 48
Plaintiff, who did not have access to non-public information through which to test the assertions

in the Offering Documents.

       131.    However, it is evident that the Underwriter Defendants did not fulfill their

obligation to ensure that investors, like ABP, were provided with Offering Documents containing

accurate and complete information. For example, Ms. Beal told the FCIC in her prepared

remarks, “[t]o our knowledge, prospectuses do not refer to Clayton and its due diligence work.”

She further stated that “Clayton does not participate in the securities sales process, nor does it

have knowledge of our loan exception reports being provided to investors or the rating agencies

as part of the securitization process.” Additionally, Mr. Johnson confirmed to investigators that

Clayton’s findings should have been disclosed to investors.

               3.     JPMorgan Chase Benefited From The Securitization of Defective
                      Loans At The Expense of Investors

       132.    By late 2006, the heads of JPMorgan Chase realized that the deterioration of

underwriting standards had reached a critical level. In a September 2, 2008 article, FORTUNE

magazine reported that Dimon received a report from JPMorgan’s chief of loan servicing in

October 2006, showing that late payments on subprime loans were rising at an alarming rate.

Dimon placed a call to Defendant King, JPMorgan’s then-chief of securitized products, warning

him to “watch out for subprime” and that “[t]his stuff could go up in smoke.” Yet, while

warnings were circulated internally on the dangers of subprime mortgage loans, JPMorgan, in

order to maximize its fees, continued to originate, securitize and sell them to investors such as

ABP. JPMorgan’s Chief Risk Officer Barry Zubrow told the FCIC on September 1, 2010, that

“there was a tradeoff between certain financial covenants and protections versus a desire to

maintain market share.”




                                               49
       133.    According to FORTUNE magazine, in October 2006 Dimon suggested to Defendant

King that JPMorgan Chase needed to start unloading its subprime-mortgage exposure, stating,

“We need to sell a lot of our positions.” JPMorgan subsequently sold more than $12 billion in

subprime mortgage debt from its own balance sheet and encouraged select clients to sell

securities backed by RMBS. But when questioned by the FCIC on risk management procedures

in place at JP Morgan during this time period, Mr. Dimon’s response was simply that “[i]n

mortgage underwriting, somehow we just missed, you know, that home prices don’t go up

forever and that it’s not sufficient to have stated income in home [loans].”

       134.    It is apparent that Defendants knew or acted with reckless disregard with respect

to the risk that a substantial number of the loans that were included in the securitizations

purchased by Plaintiff ABP were not underwritten in compliance with the originator’s

underwriting guidelines.

       135.    Contrary to the representations in the Offering Documents, the mortgage loans

underlying Plaintiff’s Certificates not only did not comply with the underwriting standards as

represented, but these standards were knowingly and systemically ignored by Defendants in

order to achieve the goal of originating and securitizing as many loans as possible in order to

maximize its fees.

       136.    As represented in the Offering Documents, Defendants’ underwriting guidelines

were primarily intended to assess the ability and willingness of the borrower to repay the

mortgage loan, apart from the adequacy of the mortgaged property as collateral for the loan.

Accordingly, the underwriting guidelines required the consideration of, among other things, the

borrower’s assets, liabilities, income, employment history and credit history.




                                                50
       137.    Notwithstanding these explicit requirements in their underwriting guidelines, the

originators extended numerous loans even though the borrower’s financial and employment

information was not provided, or even if it was, where that information was patently false and

the originators knew that the borrower was misrepresenting her or his income, occupation and

other information, and was engaged in outright mortgage fraud.

       138.    Defendants had access to due diligence reports revealing that a significant number

of loans underlying the RMBS they issued were flawed. This did not, however, stop investment

banks such as JPMorgan from using the trending reports to their own advantage. Johnson further

testified that Clayton’s clients used Clayton’s due diligence to “negotiate better prices on pools

of loans they [we]re considering for purchase, and negotiate expanded representations and

warranties in purchase and sale agreements from sellers.”

       139.    Since JPMorgan Chase was paying a lower price to acquire troubled loans from

the various originators, it could have passed these discounts on to investors like Plaintiff ABP.

Instead, Defendants charged investors such as Plaintiff ABP the same high prices that were

associated with better-quality loans, thereby increasing their own profits on securitizations that

they knew were problematic.

       140.    RMBS investors such as Plaintiff lacked the ability to review individual loan files,

and depended on issuers such as JPMorgan to carry out this function.            Moreover, RMBS

investors such as Plaintiff paid issuers such as JPMorgan significant fees for carrying out due

diligence reviews. By cynically ignoring the results of its due diligence and waiving loans that it

knew to be defective into securitization pools, JPMorgan neglected a job that it had been paid to

do and abdicated its gatekeeper role.




                                                51
          B.      DEFENDANT BEAR STEARNS ABANDONED ITS UNDERWRITING STANDARDS AND
                  APPRAISAL GUIDELINES IN ITS VERTICALLY INTEGRATED SECURITIZATION
                  PROCESS

          141.    Bear Stearns was a pioneer in the “vertically integrated” mortgage model.

Through the affiliates and subsidiaries that it controlled, it had a hand in virtually every aspect of

mortgage lending and a deep institutional knowledge of the marketplace.                        Bear Stearns

originated loans, pooled them, packaged them into RMBS, sold the RMBS to investors, and

serviced the securitized loans on behalf of the issuing trusts, collecting fees at each step. Bear

Stearns knew that underwriting standards were disintegrating across the mortgage industry and

chose to compete in this race to the bottom, weakening its own underwriting so as not to be left

behind.        According to Inside Mortgage Finance, Bear Stearns was the underwriter for

approximately $130.8 billion and $103.4 billion of mortgage-backed securities in 2005 and 2006,

contributing to a 123% jump in the firm’s revenue between 2003 and 2006.

          142.    Bear Stearns’ ultimate goal was to underwrite as many loans as possible by

whatever means necessary, even if this meant sacrificing quality. As Jo-Karen Whitlock, Senior

Vice President of Conduit Operations for EMC wrote in an April 4, 2006 email, “[I]f we have

500+ loans in this office we MUST find a way to underwrite them and buy them … I was not

happy when I saw the funding numbers and I knew that NY would NOT BE HAPPY. I expect to

see 500+ each day… I’ll do whatever is necessary to make sure you’re successful in meeting

this objective.”4

          143.    Bear Stearns personnel were acutely aware of the effect that its reduced

underwriting standards had on asset quality and on the performance of the RMBS that they were

selling to investors such as Plaintiff. For example, in the summer of 2006, Bear Stearns Vice


4
          Unless otherwise noted, all emphases are added and internal citations are omitted.


                                                     52
President Nicholas Smith, the deal manager responsible for a Bear Stearns RMBS, characterized

the deal as a “SACK OF SHIT” and a “shitbreather” in internal emails to Managing Director

Keith Lind. Likewise Bear Stearns mortgage finance analyst Charles Mehl referred to another

such transaction as a “going out of business sale” in an April 5, 2007 email to Lind, and Bear

Stearns Associate Director John Tokarczyk told Jeffrey Maggard, the transaction’s deal manager,

that it was a “DOG” in an April 30, 2007 missive.

       144.   Bear Stearns also abused the securitization process on the back end by demanding

that third-party originators who sold it defective loans compensate it for their breaches of

representations and warranties without passing these recoveries on to the RMBS investors who

suffered losses from the breaches.     Because it controlled the securitization process from

beginning to end, Bear Stearns was capable of manipulating the system for maximum profit.

              1.      Bear Stearns Abandoned Underwriting Guidelines and Appraisal
                      Standards In Its Own Mortgage Lending Operations

       145.   One of the reasons that Bear Stearns knew that underwriting standards had not

been followed with respect to the loans underlying its RMBS was because it had originated many

of those loans itself. Bear Stearns originated subprime mortgage loans through subsidiary

entities such as BSRMC.

       146.   Bear Stearns created BSRMC in April 2005 as a mortgage originator that would

support Bear Stearns’ securitization operations.    In 2006, its first full year of business, it

originated more than $4.3 billion in loans, most of which were Alt-A mortgages. Alt-A loans

fall into a risk category between prime and subprime, and are generally characterized by less

than full documentation, lower credit scores and higher LTV ratios.

       147.   This dramatic one-year rise would not have been possible in a crowded

marketplace had BSRMC applied prudent lending standards. BSRMC rejected loan applicants at



                                               53
a rate less than half the national average. According to an article in THE WALL STREET

JOURNAL, BSRMC turned away only about 13% of applications in 2006, compared to a

nationwide rate of 29%. In 2006 alone, BSRMC originated 19,715 mortgages worth $4.37

billion.

           148.   A derivative lawsuit brought by the State Treasurer of Michigan as lead plaintiff

(the “Michigan litigation”) quotes a sales manager who worked at BSRMC until February 2008,

as saying that his office was under great pressure to “dig deeper” and originate riskier loans that

“cut corners” with respect to credit scores and LTV ratios. Likewise, a quality control analyst

who worked at EMC from April 2006 through August 2007, whose job duties entailed reviewing

loan origination and portfolio statistics and creating reports for EMC senior management, said

that EMC would buy almost everything, including loans where the borrower’s income could not

be verified.

           149.   This rush to originate mortgages, regardless of quality, resulted in many

fraudulent and/or imprudent loans being made. For example, BSRMC made $6.8 million dollars

in mortgage loans to an Atlanta-based fraud ring. One of those indicted received a $1.8 million

mortgage after claiming that he earned more than $600,000 per year as the top officer of a

marketing firm and had $3 million in assets, when in fact he was a phone technician earning only

$105,000 per year and had assets of $35,000.

           150.   Other confidential witnesses quoted in the Michigan litigation confirm that

management understood that Bear Stearns’ high-volume business model led to risky purchases.

A former collateral analyst who worked for Bear Stearns in the first half of 2007 reported that

during late 2006 and early 2007 EMC was “buying everything” without regard for risk due to the

profitability of securitization, and that Bear Stearns managers did not enforce basic underwriting




                                                 54
standards. An underwriting supervisor and compliance analyst who worked for EMC from

September 2004 until February 2007 reported that the Bear Stearns traders who purchased the

high-risk loans were aware of their weaknesses, and ignored due diligence findings that the

borrowers had insufficient income.

       151.    In 2007, BSRMC further expanded its origination operations with the acquisition

of Encore.    Encore was a wholly-owned subsidiary of ECC Capital Corporation (“ECC

Capital”), a mortgage finance real estate investment trust that originated and invested in

residential mortgage loans. On February 9, 2007, BSRMC purchased ECC Capital’s subprime

mortgage origination business for $26 million.

       152.    Encore disregarded its own underwriting guidelines and used inflated appraisals,

leading to multiple lawsuits. In May 2009, Encore was listed as number 17 on the Center for

Public Integrity’s list of top 25 subprime lenders responsible for the subprime economic

meltdown based on the over $22 billion in high-risk, high-interest loans originated between 2005

and 2007.

       153.    In January 2009, a lawsuit was filed in the Eastern District of California against

Encore and several other defendants, alleging that it engaged in a scheme to coerce low income

borrowers into loans that they could not afford. The complaint alleged that defendants did not

assess borrowers’ credit risk, debt-to-income ratios, or any other objective factors designed to

assess repayment ability. Moreover, the plaintiffs claimed that Encore encouraged appraisers to

overstate and did overstate appraisal values in order to push more loans through the system.

Plaintiffs’ Truth In Lending Act (“TILA”) claims were dismissed on statute of limitations

grounds. In July 2009, a similar complaint was filed in the Central District of California against




                                                 55
Encore and several other defendants, alleging that Encore was involved in originating loans

based upon false and inflated appraisal values.

        154.    Moreover, unlike ABP, Ambac Assurance Corporation (“Ambac”), an insurer that

provided insurance for Bear Stearns RMBS, had access to complete loan files for certain Bear

Stearns securitizations that are part of the same sequence of offerings as some of the Bear

Stearns Certificates at issue here. Ambac made its analyses public for the first time in November

2009, but expanded it in January 2011. These analyses reveal that Bear Stearns misrepresented

key elements of the mortgage loans, including widespread disregard of underwriting guidelines.

        155.    Ambac’s analysis involved four offerings that were part of the same series of

offerings in which ABP invested: SACO 2005-10, SACO 2006-2, SACO 2006-8, and BSSLT

2007-1. These offerings involved the same types of collateral originated at roughly the same

time and by the same entities that originated the mortgage loans underlying ABP’s Bear Stearns

Certificates.

        156.    Ambac reviewed 1,486 loans from these offerings, and found that 89% involved

breaches of representations and warranties made by EMC in the insurance contracts, including

“[t]he most prevalent and troubling of the breaches … (1) rampant misrepresentation about

borrower income, employment, assets, and intentions to occupy the purchased properties, and

(2) the loan originators’ abject failures to adhere to proper and prudent mortgage-lending

practices, including their own underwriting guidelines.”

        157.    Based on its investigation, Ambac concluded that “the entire pool of loans that

EMC securitized in each Transaction is plagued by rampant fraud and an abdication of sound

mortgage-origination and underwriting practice.” As such, these fraudulent practices implicated

not only EMC, but the entire “Bear Stearns securitization machine,” which Ambac described as




                                                  56
“a house of cards, supported not by real value and sound practices but by Bear Stearns’s appetite

for loans and disregard as to the risks those loans presented.”

       158.    Ambac’s random sampling of loans – which included loans from the same series

and time period as offerings in which ABP invested – produced the following results:

               •       Of the sample of 372 randomly selected loans in the SACO 2005-10
                       Transaction, Ambac identified breaches of representations and warranties
                       in 336 loans, or 90%;

               •       Of the sample of 369 randomly selected loans in the SACO 2006-2
                       Transaction, Ambac identified breaches of representations and warranties
                       in 337 loans, or 91%;

               •       Of the sample of 379 randomly selected loans in the SACO 2006-8
                       Transaction, Ambac identified breaches of representations and warranties
                       in 334 loans, or 88%;

               •       Of the sample of 366 randomly selected loans in the BSSLT Transaction,
                       Ambac identified breaches of representations and warranties in 325 loans,
                       or 88%; and

               •       The analysis described above demonstrates with a high degree of certainty
                       that breaches of representations and warranties exist in a comparable
                       percentage of loans in the total loan pool in each Transaction.

Ambac Assurance Corporation v. EMC Mortgage Corp., No. 08 Civ. 9464 (RMB) (THK

(S.D.N.Y.)

       159.    Assured Guaranty Corp. (“Assured”), another RMBS insurer, made similar

discoveries about the fraudulent practices of Bear Stearns Defendants through its analysis of loan

files associated with EMC’s SACO 2005-GP1 offering. Assured wrote insurance for the offering

and had access to some of the complete files for loans that were included in the trust pool.

       160.    Assured conducted two separate analyses of samples of defaulted loans from the

offering, which were made public in July 2010. Assured’s first review of a sample of 430

defaulted loans revealed “widespread breaches of EMC’s representations and warranties in over

88% of the loans examined.” Assured’s second review of an additional sample of 476 defaulted


                                                 57
loans uncovered “widespread breaches of EMC’s representations and warranties in over 92% of

the loans examined.” These widespread defaults involved the same types of loans during the

same time period as those underlying ABP’s Bear Stearns Certificates.

               2.     Bear Stearns Was Aware That Third Party Originators Were
                      Abandoning Their Underwriting Guidelines and Appraisal Standards

       161.    In addition to originating loans through entities that it directly controlled, such as

BSRMC and Encore, Bear Stearns also purchased loans from third-party originators. In its Form

10-K Annual Report for the period ending November 30, 2006, BSCI stated that, “EMC, in

addition to purchasing loans from [BSRMC] for securitization, purchases loan portfolios from

financial institutions and other secondary mortgage-market sellers.         Prior to bidding on a

portfolio of loans for purchase, an analysis of the portfolio is undertaken by experienced

mortgage-loan underwriters.”

       162.    Despite these representations, Bear Stearns did not have consistent due diligence

practices for analyzing the loans it purchased from third-party originators. Instead, according to

the deposition testimony of Managing Director Baron Silverstein, originators, “typically would

stipulate the terms of a portfolio which would include the due diligence strategy. Bear Stearns

would evaluate the due diligence that was being stipulated by the seller in order to determine

whether or not we were comfortable to purchase a pool of mortgage loans based upon that

strategy…     Bear Stearns’ due diligence strategy continually changed based upon the

marketplace, transactions and sellers.”

       163.    Bear Stearns’ lack of consistent due diligence practices allowed it to ratchet down

its standards so as to compete for loans with other Wall Street securitization firms. An internal

Bear Stearns email sent from Vice President of Due Diligence John Mongelluzzo to Managing

Director Mary Haggerty and other Bear Stearns employees on February 11, 2005 reveals that



                                                58
Senior Managing Director Chris Scott ordered the amount of required due diligence to be

reduced on a trade by trade basis “in order to make us more competitive on bids with larger

subprime sellers.” In a follow-up email to Haggerty, Mongelluzzo, and others sent on February

11, 2005, Exchange employee Biff Rogers noted that as a result of this change, Bear Stearns

would no longer have complete due diligence files to rely on.

        164.        Bear Stearns executives realized that their due diligence was inadequate but did

nothing to remedy the situation. Like JPMorgan, Bear Stearns made use of Clayton as a third

party vendor of due diligence services. In a March 23, 2006 email chain regarding Clayton,

Defendant Verschleiser, the head of Bear Stearns’ mortgage and asset-backed securities trading

desk, said, “We are waisting [sic] way too much money on Bad Due Diligence.” A year later, in

a March 15, 2007 email chain, Verschleiser said, “We are just burning money hiring [Clayton].”

        165.        An internal Bear Stearns email chain dated March 24, 2006 reveals that due to

Bear Stearns’ slipshod procedures, some types of loans were placed into securitizations without

ever having been cleared through due diligence. Deal manager Robert Durden wrote to Bear

Stearns Managing Director Stephen Golden that, “I agree the flow loans were not flagged

appropriately and we securitized many of them which are still to this day not cleared. I think the

ball was dropped big time on the flow processes involved in the post close [due diligence], from

start to finish.”

        166.        When Bear Stearns’ due diligence vendors did report underwriting failures, Bear

Stearns frequently decided to overlook them. Clayton’s data revealed that of the securitizations

sponsored by Defendant EMC, the Sponsor for all Bear Stearns issued Certificates purchased by

Plaintiff ABP, which Clayton reviewed for underwriting compliance, 16% neither met

underwriting guidelines nor possessed compensating factors to justify an exception to be




                                                   59
included into securitizations (Event 3). However, EMC ignored many of these underwriting

failures, waived 42% of those rejected loans back into its mortgage pools, and sold RMBS

containing these non-compliant loans to investors like Plaintiff ABP.             An employee of

Watterson-Prime, another vendor that Bear Stearns used for due diligence reviews, said in a May

27, 2008 NPR interview that about 75% of the time, loans that should have been rejected were

put into the pool and sold. Adfitech, Inc. (“Adfitech”), yet another third party firm that EMC

hired to “review loans to evaluate if they meet investor quality guidelines, if sound underwriting

judgment was used, and if the loan is devoid of all misrepresentation or fraud characteristics,”

found that 38.8% of the loans it sampled were defective according to EMC’s stated quality

control guidelines.

        167.    When Bear Stearns’ due diligence reviews revealed massive underwriting

failures, Bear Stearns made a conscious decision to ignore this information and further reduce

the amount of due diligence it performed. Around May 2005, John Mongelluzzo, the head of

Bear Stearns’ due diligence department, proposed that Bear Stearns begin tracking the

performance of loans that had received exceptions. This would have permitted Bear Stearns to

examine the impact that its liberal use of exceptions was having on default rates and the overall

riskiness of its RMBS, and ensure that the due diligence managers were making appropriate

decisions. Instead, Bear Stearns chose to grant exceptions blindly. Not only did it ignore the

effects that its exceptions were having, it directed its personnel to purge the daily reports that it

received from its due diligence firms so as not to leave an audit trail.

        168.    Likewise, in an April 5, 2007 email, an EMC assistant manager for quality control

underwriting and vendor management ordered Adfitech to halt certain procedures to verify loan

file information, stating that:




                                                 60
               •       “Effective immediately, in addition to not ordering occupancy inspections
                       and review appraisals, DO NOT PERFORM REVERIFICATIONS OR
                       RETRIEVE CREDIT REPORTS ON THE SECURITIZATION BREACH
                       AUDITS,”

               •       Do not “make phone calls on employment,” and

               •       “Occupancy misrep is not a securitization breach.”

       169.    Former EMC mortgage analyst Matthew Van Leeuwen was quoted in a May 2010

article in THE ATLANTIC, as saying that Bear Stearns adopted unreasonably short time frames for

its mortgage due diligence analyses, told analysts to make up missing data if mortgage

originators did not respond to requests, and accepted loans with weak verification rather than

requesting clarification from the originators. According to the FHFA complaint, Van Leeuwen

also told the FHFA in a March 30, 2009 e-mail that “the pressure was pretty great for everybody

to just churn the mortgages on through the system,” and that analysts were encouraged to “just

fill in the holes” when data was missing. Another EMC analyst told THE ATLANTIC, “[F]rom

Bear’s perspective, we didn’t want to overpay for the loans, but we don’t want to waste the

resources on deep investigation: that’s not how the company makes money. That’s not our

competitive advantage – it eats into profits.”

               3.      Bear Stearns Offloaded Loans That It Had Identified As Fraudulent
                       And/Or Likely To Default Onto Unsuspecting Investors

       170.    Bear Stearns was aware that third party originators routinely sold it loans that did

not comply with representations and warranties, as evidenced by its aggressive pursuit of claims

against third party originators for selling it defective loans. Bear Stearns filed $2.5 billion in

claims for representation and warranty violations in 2006, an increase of 78% from the previous

year, and resolved $1.7 billion in claims, an increase of over 227% from the previous year,

according to a February 26, 2007 audit report addressed to Managing Director Mary Haggerty.




                                                 61
       171.    However, although Bear Stearns recognized that thousands of the loans it had

securitized involved breaches of the third party originators’ stated underwriting standards, it did

not remove these flawed assets from the RMBS mortgage pools it securitized and sold to

unsuspecting investors such as Plaintiff, who did not have the same access to loan-level data and

instead relied on the representations made by issuers such as Bear Stearns. Rather than demand

that the third-party originators repurchase the defective loans from the RMBS mortgage pools,

Bear Stearns offered them alternatives such as price adjustments, cash settlements or credits for

future loan purchases, and then pocketed the funds that it received without notice or

compensation to the RMBS investors.

       172.    An    internal    audit   report        from   Bear    Stearns’   external   auditor

PriceWaterhouseCoopers (“PWC”) dated August 31, 2006, noted the impropriety of this

practice. PWC stated that when Bear Stearns identified a clear breach in loan quality standards it

should immediately buy back the defective loan from the issuing trust “to match common

industry practices, the expectation of investors and to comply with the provisions in the [Pooling

and Servicing Agreement].” PWC also recommended that Bear Stearns promptly bring its

repurchase procedures into compliance with SEC regulations.

       173.    As one example of Bear Stearns’ abuse of the representations and warranties

claim process, Bear Stearns entered into a settlement agreement with SouthStar Funding LLC

dated January 30, 2007, pursuant to which SouthStar agreed to pay $2,604,515 in lieu of

repurchasing certain loans that were defective for reasons including misrepresentations

concerning owner-occupancy. On information and belief, this recovery was not passed on to the

RMBS investors who had purchased the SouthStar loans.                The FHFA has identified two

additional 2007 settlements in which originators agreed to pay a total of $13 million to Bear




                                                  62
Stearns in lieu of repurchasing loans. Bear Stearns deal manager Robert Durden testified in a

December 11, 2009, deposition that he could not identify a single instance in which Bear Stearns

disclosed to RMBS investors that it was recovering settlements from originators with regard to

securitized loans and not putting the money into the appropriate trusts. Bear Stearns did not

implement a policy to promptly review defective loans for securitization breaches until

September 2007, at the earliest.

       174.    Bear Stearns’ repurchase activities not only provided it with detailed knowledge

of the poor quality of the assets in its mortgage pools and further evidence of an epidemic of

underwriting failures amongst third party originators, but also incentivized it to securitize loans

that were more likely to default. In such instances, Bear Stearns stood to gain by requiring third

party originators to compensate it for representation and warranty breaches, while the RMBS

investors who owned the defective loans unknowingly faced all the risk of loss.

       175.    The majority of the repurchase claims that Bear Stearns filed against its

originators were based on early payment defaults (“EPDs”). EPDs occur when a borrower

defaults on a payment within 90 days of taking out of a loan, and are considered a strong

indication that the loan was fraudulent or otherwise should never have been made. Because Bear

Stearns had recourse against the originators of loans that experienced an EPD, its initial policy

was to keep loans in its inventory and not securitize them until the EPD period ran. However, by

the end of 2005, Bear Stearns dropped this important safeguard. Not only did it begin placing

loans directly into securitizations without any waiting period to ensure that payments were being

made, it rushed to securitize newly-acquired loans before the EPD period had run. For example,

in a June 13, 2006 email, Defendant Verschleiser wrote to Deal Manager Robert Durden and

Managing Director Keith Lind that Bear Stearns needed “to be certain we can securitize the




                                                63
loans with 1 month epd before the epd period expires.” On the same day, Verschleiser also

demanded an explanation from Managing Director Haggerty as to why some loans “were

dropped from deals and not securitized before their epd period expired.” This revised policy

greatly increased risks for RMBS investors, but ensured that Bear Stearns would collect both

securitization fees and any EPD repurchase claims that would arise when the loans defaulted, as

Bear Stearns anticipated they would. In a May 5, 2007 email, Lind demanded “to know why we

are taking losses on 2nd lien loans from 2005 when they could have been securitized?????”

       176.   Bear Stearns acquired and securitized so many defective loans that it became

unable to process all of its repurchase claims. A recently discovered internal audit report dated

February 28, 2006, identified a backlog consisting of at least 9,000 outstanding claims worth

over $720 million.

       C.     WAMU ABANDONED UNDERWRITING STANDARDS AND APPRAISAL GUIDELINES
              IN ITS VERTICALLY INTEGRATED SECURITIZATION PROCESS

       177.   WaMu was aware of the fault lines in its underwriting as early as September

2004, when James Vanasek, who was then WaMu’s Chief Risk Officer, circulated an internal

memorandum entitled, “Perspective.” The memorandum stated in part:

              In the midst of all this change and stress [in the mortgage area of
              the bank], patience is growing thin. We understand that. We also
              know that loan originators are pushing very hard for deals. But we
              need to put all of this in perspective.

              At this point in the mortgage cycle with prices having increased far
              beyond the rate of increase in personal incomes, there clearly
              comes a time when prices must slow down or perhaps even
              decline. There have been so many warnings of a Housing Bubble
              that we all tend now to ignore them because thus far it has not
              happened. I am not in the business of forecasting, but I have a
              healthy respect for the underlying data which says ultimately this
              environment is no longer sustainable. Therefore I would conclude
              that now is not the time to be pushing appraisal values. If anything
              we should be a bit more conservative across the board....



                                               64
              This is a point where we should be much more careful about
              exceptions. It is highly questionable as to how strong this
              economy may be; there is clearly no consensus on Wall Street. If
              the economy stalls, the combinations of low FICOs, high LTVs
              and inordinate numbers of exceptions will come back to haunt us.

       178.   Mr. Vanasek’s testimony before the PSI was consistent. He stated that as early as

2004, circumstances within WaMu and in the broader market made “clear to me that [mortgage

lending] practices were fundamentally unsound, and it couldn’t go on forever. We had housing

prices increasing much more rapidly than incomes and you knew that ultimately there was a limit

to this. It just practically could not go on … [T]hat was part of my … urgent message to

management that we needed to drop these practices and become more conservative at that point

in time.”

       179.   This prescient warning conflicted with WaMu’s desire for short-term growth and

profit and was therefore disregarded. In January 2005, the WaMu Bank Board of Directors

formally adopted a policy document entitled, “Higher Risk Lending Strategy,” detailing a plan to

shift focus from originating low-risk fixed-rate loans to higher risk subprime, home equity and

option adjustable-rate mortgage (“Option ARM”) loans, because the more hazardous loans were

more profitable to sell for securitization. According to the Levin Report, at the time, subprime

loans were eight times more profitable for WaMu than fixed rate loans. The plan called upon

WaMu to do the opposite of what its most senior risk officer had recommended and originate

more loans to borrowers with low FICO scores, more loans with high LTV ratios, and more

loans to borrowers who could not verify their incomes.

       180.   The FCIC characterized the “Higher Risk Lending Strategy” as “a high risk

strategy to issue high risk mortgages.” Vanasek testified before the PSI that by mid-2005,

WaMu management had shifted the company’s focus in an attempt to transform it into “more of

a higher risk, sub-prime lender.” Vanasek said that, “Washington Mutual was a reflection of the


                                              65
mortgage industry characterized by very fast growth, rapidly expanding product lines and

deteriorating credit underwriting.”

       181.    Later in his testimony before the PSI, Vanasek poignantly summarized the

behavior of WaMu and others that resulted in the global financial crisis, stating that the

breakdown in subprime mortgage lending, “was both the result of individual failures and

systematic failures fueled by self interest, failure to adhere to lending policies, very low interest

rates, untested product innovations, weak regulatory oversight, astonishing rating agency lapses,

weak oversight by boards of directors, a cavalier environment on Wall Street, and very poorly

structured incentive compensation systems that paid for growth rather than quality.”

       182.    Under the “Higher Risk Lending Strategy,” WaMu management purposefully

weakened the company’s lending standards and ignored known underwriting failures at Long

Beach, which was one of WaMu’s top originators. Long Beach was the sole originator of the

mortgage loans underlying several securitizations purchased by Plaintiff ABP that are at issue in

this case. When WaMu’s due diligence revealed that many of the loans it was securitizing did

not meet underwriting guidelines, WaMu permitted those loans to be securitized anyway.

Indeed, WaMu intentionally securitized loans that it knew were likely to default so that it could

get these loans off of its own books.

               1.      WaMu Abandoned Underwriting Guidelines and Appraisal
                       Standards In Its Own Mortgage Lending Operations

       183.    WaMu zealously pursued the “Higher Risk Lending Strategy” adopted by

management, almost doubling the percentage of higher risk loans that it originated and purchased

from 36% to 67% from 2003 to 2007.              WaMu’s subprime securitizations jumped from

approximately $4.5 billion in 2003 to $29 billion in 2006. By 2006, WaMu had increased its

securitization business so dramatically, increasing WaMu’s market share in the subprime



                                                 66
mortgage market from 4% to 12%, that it became the second ranked RMBS issuer by volume in

the country.

       184.    The only way that WaMu could originate (and ultimately securitize) so many high

risk loans was to willfully disregard loan underwriting standards. The FCIC identified a host of

poor lending practices at WaMu and Long Beach, including offering high risk borrowers large

loans, steering borrowers to high risk loans, offering “no income verification” loans, offering

loans with deceptively low teaser rates, exercising weak oversight over loan personnel and third-

party mortgage brokers, encouraging shoddy underwriting by compensating underwriting

personnel based on volume rather than quality, and tolerating, indeed encouraging, mortgage

fraud. The sales department was incentivized to seek out the riskiest loans, since commissions

on those were higher than for traditional, conservative products. For example, according to

WaMu documents obtained by the THE SEATTLE TIMES, a loan consultant selling a $300,000

Option ARM would earn a $1200 commission — $240 more than for a fixed-rate loan of the

same amount. WaMu also provided compensation incentives to sell loans with prepayment

penalties.

       185.    WaMu systematically weakened its underwriting and shoved aside personnel and

institutions that tried to maintain reasonable standards.      According to an internal WaMu

newsletter obtained by the THE SEATTLE TIMES, dated October 31, 2005, risk managers were

instructed not to be a “regulatory burden” and that they needed to “shift [their] ways of thinking”

towards supporting growth plans. The memorandum also instructed risk managers to rely less on

examining borrower documentation and more on automated processes.

       186.    In 2004, Vanasek approached WaMu CEO Kerry Killinger and asked him to

publicly disavow irresponsible lending practices such as making subprime loans with 100% LTV




                                                67
ratios. This request was ignored. Likewise, in early 2005, Vanasek sent a memorandum to

WaMu’s then President and Chief Operating Officer, Steve Rotella, complaining that attempts to

enforce underwriting discipline were “continuously thwarted by an aggressive, and often times

abusive group of Sales employees within the organization.”

       187.      From 2000 to 2007, WaMu’s compliance department had nine different leaders.

Most of this turnover was caused by compliance officers leaving WaMu or being fired. In

March 2007, an Office of Thrift Supervision (“OTS”) examiner noted that “The Board of

Directors should commission an evaluation of why smart, successful effective managers can’t

succeed in this position … (HINT: It has to do with top management not buying into the

importance of compliance and turf warfare and [WaMu CEO Kerry Killinger] not liking bad

news.)”

       188.      One of the ways that WaMu increased its loan origination was by ignoring the

credit histories of its borrowers. Regulatory agencies including the FDIC and OTS have said that

“prime” loans should only be offered to borrowers with FICO scores of 660 or higher. However,

according to a WaMu training document entitled, “Specialty Lending UW [Underwriter] HLCA

[Home Loans Credit Authority] Training,” WaMu considered borrowers with FICO scores over

619 to be “prime” borrowers. WaMu told its underwriters that even certain borrowers with

bankruptcies within the past four years, or with credit scores as low as 540 were approved for

“prime” loans.

       189.      WaMu also placed borrowers into exotic loans that it knew were inappropriate for

them. For example, an Option ARM loan is a type of loan under which the borrower had a

number of different payment options, including interest-only payments and minimum payments

that did not even cover interest and therefore caused the principal of the loan to increase over




                                                68
time rather than decrease. If the principal level rises above a certain threshold the interest rate on

the loan automatically increases, in many cases resulting in a “price shock” as the borrower is

suddenly forced to make higher payments than he or she can afford. The nonprofit Center for

Responsible Lending has said that these complicated loans are “ideally suited for

misrepresentation.”

       190.    As the result of its own internal focus group research, WaMu knew that most

borrowers did not fully understand Option ARMs, and that only a few focus group participants

understood how the interest rates on Option ARMs functioned. Nonetheless, Option ARMs were

a mainstay of WaMu’s loan production. In 2005 alone, WaMu originated $32.3 billion of these

high-risk loans. According to a December 23, 2009 SEATTLE TIMES article, “Reckless Strategies

Doomed WaMu,” Craig Davis, the executive in charge of WaMu’s lending and financial services

operations, pushed WaMu to increase Option ARM production.                   “[Davis] only wanted

production,” said former WaMu Executive Vice President Lee Lannoye. “It was someone else’s

problem to worry about credit quality, all the details.”

       191.    WaMu former Chief Legal Officer Fay Chapman has told the SEATTLE TIMES

that, “[ARMs] were just nasty products – just awful for the consumers” and that, “Mortgage

brokers put people into the product who shouldn’t have been.” WaMu loan officer Renee Larsen

was so disturbed by the complaints she received from Option ARM customers that she contacted

the Florida Attorney General. “I feel like [WaMu] perpetuated fraud with my help,” Larsen told

THE SEATTLE TIMES.

       192.    Another way that WaMu increased loan volume at the cost of quality was by

making increased use of third party lenders and brokers. The Office of the Inspector General

found that from 2003 to 2007, between 48% and 70% of WaMu’s single-family residential loans




                                                 69
came through third-party originators. Loans generated by third-party originators were attractive

to WaMu because they were much cheaper to close than loans generated through WaMu’s retail

operations. However, the cost of this practice was that WaMu had much less oversight over loan

quality. The OIG found consistent weaknesses in WaMu’s supervision of the originators it did

business with. In 2007, WaMu had only 14 employees overseeing more than 34,000 third-party

brokers. Predictably, a 2006 internal WaMu analysis discovered that loans issued by third-party

brokers had issues including abnormal delinquency rates, delinquency at the time of purchase,

failure to meet underwriting standards, and lower credit quality.

       193.    WaMu also increased loan volume by vastly expanding its use of “no

documentation” loans. According to the Levin Report, by the end of 2007, WaMu had not

verified borrower income for 50% of its subprime loans and 90% of its home equity loans.

Stated income loans were intended to be a product for borrowers who had strong credit but could

not provide documentation of their income. However, WaMu “layered” risk by offering these

loans to borrowers with weak credit. A WaMu agent told THE NEW YORK TIMES that if a

borrower’s job or income was sketchy, the WaMu agent would instruct brokers to leave parts of

applications blank so as to avoid prompting verification. Nancy Erken, a WaMu loan consultant

in Seattle, told THE SEATTLE TIMES that, “The big saying [at WaMu] was, ‘a skinny file is a good

file’.” According to Erken, when she took files to be processed, WaMu staff would ask her,

“Nancy, why do you have all this stuff in here? We’re just going to take this stuff and throw it

out.” Chief Legal Officer Faye Chapman, said that WaMu made a loan to O.J. Simpson. When

she asked how such a loan could be foreclosed on, given the large civil judgment outstanding

against him, she was told that there was a letter in the file from Simpson saying, “The judgment

is no good, because I didn’t do it.”




                                                70
       194.    WaMu also did not take precautions to ensure that borrowers’ stated incomes

were reasonable. For example, according to a December 27, 2008 NEW YORK TIMES article, one

WaMu borrower who claimed a $12,000 monthly income as a gardener, but could not provide a

verifiable business license, only a photograph of his truck emblazoned with the name of his

landscaping business, was approved for a loan. Steven M. Knobel, the founder of an appraisal

company that did business with WaMu until 2007, compared WaMu’s lending standards to the

Wild West. He said, “If you were alive, they would give you a loan. Actually, I think if you

were dead, they would still give you a loan.”

       195.    WaMu’s attitude towards mortgage fraud was similarly cavalier. For example, in

2005 an internal WaMu review discovered substantial evidence of loan fraud at its Downey and

Montebello branch loan offices in Southern California. A full 42% of the loans reviewed

contained suspect activity or fraud, primarily involving misrepresentations of income and

employment, false credit letters, and appraisal issues.   The loan delinquency rate for Luis

Fragoso, the loan officer heading the Montebello office was “289% worse than the delinquency

performance for the entire open/active retail channel book of business,” and 83% of Fragoso’s

loans were confirmed as fraudulent. The loan delinquency rate for Thomas Ramirez, the loan

officer heading the Downey loan office, was 157% worse than the average, and 58% of his loans

were found to be fraudulent. The review further noted that this malfeasance could have been

prevented with improved processes and controls, and recommended firm action against Ramirez

and Fragoso. However, even when confronted with documented proof of blatant and repeated

fraud, WaMu management took no action whatsoever. Over the next two years, Ramirez and

Fragoso continued to issue high volumes of fraudulent loans, and even won luxury Hawaiian

vacations as rewards for their “productivity.”




                                                 71
       196.    Rich compensation incentives for loan origination, combined with lax procedures

for preventing or discovering abuses, created an atmosphere in which fraud was prevalent. In a

November 1, 2008 NEW YORK TIMES article entitled, “Was There A Loan It Didn’t Like?”

former WaMu Senior Mortgage Underwriter Keysha Cooper said that brokers offered her bribes

in exchange for approving loans, and that management insisted that even suspicious loans be

approved. When Cooper rejected a loan file filled with inconsistencies, her supervisor scolded

her, saying, “there is no reason you cannot make this loan work.” Cooper said, “I explained to

her the loan was not good at all, but she said I had to sign it.” Her supervisor even went so far as

to complain to the team manager about the rejection and ask that a formal letter of complaint be

placed in Cooper’s personnel file. Four months later, the borrower had not made a single

payment and the loan was in default. “I swear 60 percent of the loans I approved I was made to,”

Cooper said.

       197.    In Vanasek’s prepared statement to the PSI, he said:

               There have been questions about policy and adherence to policy.
               This was a continuous problem at Washington Mutual where line
               managers particularly in the mortgage area not only authorized but
               encouraged policy exceptions. There had likewise been issues
               regarding fraud. Because of the compensation systems rewarding
               volume vs quality and the independent structure of the loan
               originators, I am confident that at times borrowers were coached to
               fill out applications with overstated incomes or net worth adjusted
               to meet the minimum underwriting policy requirements. Catching
               this kind of fraud was difficult at best and required the support of
               line management. Not surprisingly, Loan originators constantly
               threatened to quit and go to Countrywide or elsewhere if their loan
               applications were not approved.

       198.    From 2004 to 2008, WaMu’s regulators repeatedly criticized WaMu for failure to

exercise oversight over its loan personnel or abide by its own credit standards. In August 2005,

WaMu received a Report of Examination from OTS stating that, “the level of deficiencies, if




                                                72
unchecked, could erode the credit quality of the portfolio.” A June 2008 OTS report identified

multiple longstanding problems with WaMu’s fraud detection processes, including:

               •      Specific WaMu offices were identified as hotbeds of fraud in 2005 and
                      2007 reviews, but these concerns were not acted upon in a timely manner;

               •      WaMu’s sales-focused culture stressed production volume more heavily
                      than quality, with a limited focus on individual accountability;

               •      WaMu had no formal process to deal with instances of mortgage fraud
                      brought to its attention by third parties; and

               •      WaMu production personnel were allowed to participate in income,
                      employment and asset verification, presenting a clear conflict of interest.

       199.    The report noted that these issues had been brought to the attention of WaMu

management in previous reports, but that management had not adequately addressed them.

       200.    In 2008, a review of underwriting quality and compliance by Radian Guaranty

Inc., one of WaMu’s insurers, gave WaMu Bank an overall rating of “Unacceptable.” Of 133

loans reviewed, it found 11 or 8% had “insufficient documents to support the income used to

qualify the borrower and exceptions to approved guidelines.” Of the 10 delinquent loans it

reviewed, it found that half had “questionable property values, occupancy and possible

strawbuyers [sic].”

       201.    An internal September 2008 review found that controls intended to prevent the

sale of fraudulent loans to investors were “not currently effective” and there was no “systematic

process to prevent a loan … confirmed to contain suspicious activity from being sold to an

investor.” In other words, even where a loan was marked with a red flag indicating fraud, that

did not stop the loan from being sold to investors. The 2008 review found that of 25 loans

tested, “11 reflected a sale date after the completion of the investigation which confirmed fraud.

There is evidence that this control weakness has existed for some time.” This review was sent to




                                               73
WaMu’s new CEO, Alan Fishman, as well as its President, Chief Financial Officer, Chief

Enterprise Risk Officer, and General Auditor.

           202.   On March 16, 2011, the Federal Deposit Insurance Corp. (“FDIC”) filed a

complaint against WaMu CEO Killinger, COO Rotella, and Schneider, president of WaMu’s

home loans division. Fed. Deposit Ins. Corp. v. Killinger, et al., No. 2:11-cv-00459 (W. Dist.

Wash. filed March 16, 2011). The suit seeks to recover $900 million from the executives, and

accuses them of “[leading] the bank on a ‘lending spree’ knowing that the housing market was in

a bubble and fail[ing] to put in place the proper risk management systems and internal controls.”

According to the complaint, Killinger, Rotella and Schneider focused on high-risk loans that

would create short term gains and increase defendants’ compensation, which totaled some $95

million over 2005 to 2008, all the while ignoring internal and external warning signs about

problems in the subprime mortgage markets, and ultimately causing WaMu to lose billions of

dollars.

           203.   The FDIC’s complaint cites a 2005 memorandum sent to Defendant Rotella from

WaMu’s Chief Credit Officer, stating that “The organization is at significant risk in its Option

ARM … portfolio of payment shock created by abnormally low Start – or teaser – rates, and

aggressively low underwriting rates… It is our contention that in the upwardly sloping rate

environment and expected flattening of housing appreciation, we are putting borrowers in homes

they simply cannot afford.” The complaint alleges that in June 2005, WaMu’s Chief Credit

Officer met personally with Killinger and expressed the same concerns.

                  2.     WaMu Was Aware That Its Subsidiary Long Beach Was Abandoning
                         Its Underwriting Guidelines And Appraisal Standards

           204.   In addition to its existing mortgage origination arms, WaMu sought to expand its

capacity for mortgage loan production. In 1999, WaMu’s parent company WMI purchased Long



                                                 74
Beach’s parent company. Long Beach made loans for the express purpose of securitizing them.

It did not have its own loan officers and relied entirely on third party mortgage brokers to

generate loans.     After WaMu acquired Long Beach, loan originations and securitizations

increased more than tenfold between 2000 to 2006, from $2.5 billion to $30 billion.

       205.    Long Beach was one of the worst performing originators in the mortgage market.

Its loans repeatedly experienced early payment defaults, high delinquency rates and losses due to

its failure to apply basic underwriting standards. According to the Levin Report, every one of

the 75 Long Beach mortgage backed securities tranches rated AAA by S&P in 2006 have since

been downgraded to junk status, defaulted or been withdrawn, and most of the 2006 Long Beach

securitizations have delinquency rates of 50% or higher. The Certificates purchased by Plaintiff

ABP have likewise experienced the same downgrades to junk status and high delinquency rates.

See infra, ¶ 528.

       206.    Diane Kosch, a Long Beach underwriter, told THE HUFFINGTON POST that she was

only given 15 minutes per loan file to review for evidence of fraud, and that when she noticed

matters such as suspicious incomes, questionable appraisals, or missing documentations, the

loans were usually approved nevertheless. “Most of the time everything that we wanted to stop

the loan for went above our heads to upper management,” Kosch said. “We were basically the

black sheep of the company, and we knew it.” Furthermore, in some instances, pages were

removed from loan files. Suspicions of fraud led some members of her quality control team to

make their own copies of problematic files so as to protect themselves. In some instances,

account executives would offer loan reviewers bribes so as to overlook loan deficiencies.

“They’d offer kickbacks of money,” said Antoinette Hendryx, a former Long Beach underwriter,

“Or I’ll buy you a bottle of Dom Perignon. It was just crazy.”




                                               75
       207.      Karan Weaver, another former Long Beach underwriter, told THE HUFFINGTON

POST that “A lot of brokers were forging [loan documentation],” and Pam Tellinger, a former

Long Beach account executive said, “I knew brokers who were doing fraudulent documents all

day long.” According to a former account executive, in some cases Long Beach sales team

members would coach brokers in creating false loan documents.

       208.      WaMu was keenly aware of Long Beach’s many failings as an originator. In

2003, a WaMu internal analysis of Long Beach’s first quarter lending found that 40% of the

loans reviewed were unacceptable, and WaMu’s legal department froze all Long Beach

securitizations until the company improved its performance.           A corporate credit review

confirmed that “credit management and portfolio oversight practices were unsatisfactory.” In an

August 2007 email chain, WaMu President Steven Rotella described Long Beach as “a business

with no financial management … manual underwriting, no P&Ls, a wholly inadequate servicing

shop, no credit staff and a culture that was totally sales driven.”

       209.      The securitization freeze forced Long Beach to hold loans on its warehouse

balance sheet, straining the company’s liquidity and viability.       WaMu’s General Counsel,

Chapman, initiated a review that included an evaluation of the loans that had accumulated during

the freeze. Her team deemed that out of 4,000 loans reviewed, fewer than a quarter could be sold

to investors, that another 800 could not be sold, and that the rest possessed significant

deficiencies. A WaMu risk officer describing the results of a Long Beach audit said, “We found

a total mess.”

       210.      WaMu permitted Long Beach to resume securitizations in 2004, but WaMu

personnel recognized that Long Beach’s loans were still too dangerous to hold. Instead, WaMu

offloaded them onto unsuspecting investors such as ABP. For example, in November 2004, a




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WaMu risk officer noted that a number of Long Beach loans representing “our favorite toxic

combo of low FICO borrower and [high LTV] loan” were “of such dubious credit quality that

they can’t possibly be sold for anything close to their ‘value’ if we held on to them[.]” Another

WaMu risk officer forwarded these comments to the head of Long Beach, saying, “I think it

would be prudent for us to just sell all of these loans.”

       211.    In early 2005, a wave of EPDs on Long Beach loans forced Long Beach to

repurchase loans totaling nearly $837 million in unpaid principal. According to a WaMu report,

EPDs are preventable and/or detectable in nearly all cases. WaMu conducted yet another review

of Long Beach’s lending practices, analyzing the files of 213 Long Beach loans that experienced

EPDs, and found evidence of widespread fraud that should have been easily detected, including

variations in borrower signatures and White-Out on loan documents. WaMu concluded that a

relaxation of underwriting guidelines, combined with breakdowns in manual underwriting

processes, inexperienced personnel, a push to increase loan volume, and the lack of automated

fraud monitoring tools had all contributed to the deterioration in loan quality.

       212.    By 2005, WaMu leadership recognized the challenges they faced in order to keep

the company’s well-oiled securitization scheme running. In an internal e-mail, WaMu Bank’s

former CEO Killinger explained to Vanasek, “I suspect the toughest thing for us will be to

navigate through a period of high home prices, increased competitive conditions for reduced

underwriting standards, and our need to grow the balance sheet.”

       213.    Partly in response to this concern, WaMu purchased Long Beach on March 1,

2006, ostensibly to obtain greater control over the lender. However, Long Beach continued to be

swamped by EPDs resulting from poorly underwritten loans. In 2006, more than 5,200 Long

Beach loans were repurchased at a cost of $857 million.             An astounding 43% of these




                                                  77
repurchases involved borrowers who did not make even the first payments on their loans. In

January 2007, an internal WaMu review of the quality of Long Beach loans found:

               •       Appraisal deficiencies that could impact value and were not addressed;

               •       Material misrepresentations relating to credit evaluation;

               •       Legal documents were missing or contained errors or discrepancies;

               •       Credit evaluation or loan decision errors; and

               •       Missing or insufficient credit documentation.

       214.    In addition to the information that WaMu received from its internal reviews,

regulators continually brought Long Beach’s shortcomings to WaMu’s attention. At each annual

review, regulators from the OTS formally requested that the WaMu Board take action to resolve

the deficiencies in Long Beach’s lending.

       215.    The many problems associated with Long Beach were well known by WaMu’s

leadership. In September 2006, Rotella informed Killinger that Long Beach Mortgage was

“terrible” due, among other things to, “repurchases, EPDs, manual underwriting, very weak

servicing/collections practices and a weak staff.”

       216.    In 2007, Rotella wrote a reflective e-mail to Killinger, titled “Looking back.” Mr.

Rotella noted his early apprehension about Long Beach, stating, “I began to express my concerns

about Long Beach...mid 2005. The business approach was solely market share driven.” He

continued, “I said the other day that HLs [Washington Mutual’s home-loan division] was the

worst managed business I had seen in my career. (That is, until we got below the hood of Long

Beach).”

       217.    Thus, beginning in 1999, WaMu received countless indications that Long Beach

was ignoring underwriting guidelines and churning out toxic loans. Yet instead of ensuring that

its subsidiary implemented common-sense procedures to ensure underwriting quality, WaMu


                                                78
pressed Long Beach to further increase its lending and permitted its problems to fester. Vanasek

testified that Long Beach did not have effective risk management procedures when he arrived at

WaMu in 1999, and that it had not developed effective risk management procedures when he

retired at the end of 2005. He also testified that it was a “fair characterization” to say that WaMu

did not worry about the risk associated with Long Beach subprime mortgages because those

loans were sold and passed on to investors.

       218.    A January 2007 report by WaMu’s Corporate Credit Review team noted that

Long Beach’s deterioration had only accelerated under WaMu’s stewardship, with each year’s

loans since 2002 having performed worse than the previous year’s. As late as August 2007,

WaMu internal auditors still found that Long Beach had multiple, critical failures in its

origination and underwriting processes, that Long Beach personnel did not always follow

underwriting guidelines, and that Long Beach did not even track and report its underwriting

exceptions.

       219.    In a February, 2008 internal e-mail, WaMu Bank’s outgoing Chief Enterprise

Risk Officer Ronald Cathcart told John McMurray, his successor as Chief Enterprise Risk

Officer of WaMu Bank, “[P]oor underwriting quality … in some cases causes our origination

data to be suspect particularly with respect to DTI [debt-to-income ratios]. Long Beach was a

chronic problem.”

       220.    Cathcart, WaMu’s Chief Enterprise Risk Officer from 2006 to 2008, testified

before the PSI in April 2010. According to his testimony, a WaMu review of first payment

defaults at Long Beach he oversaw found that of 132 sampled loans that suffered first payment

defaults, 115 had confirmed instances of fraud, 80 had unreasonably high incomes, and 133 had

evaluation or loan decision errors.




                                                79
       221.    In describing WaMu’s lending criteria during his tenure, Cathcart illustrated how

WaMu’s poor underwriting practices doomed its aggressive mortgage lending strategy to failure:

               The source of repayment for each mortgage shifted away from the
               individual and their credit profile to the value of the home. This
               approach of focusing on the asset rather than on the customer
               ignores the reality that portfolio performance is ultimately
               determined by customer selection and credit evaluation. Even the
               most rigorous efforts to measure, monitor and control risk cannot
               overcome poor product design and weak underwriting and
               organization practices.

       222.    In his testimony before the PSI, Cathcart also explained that banks were even

extending loans to borrowers with very low FICO credit scores of 550 and below, and that such

“loan[s] will default with high probability.” Despite being aware of this high likelihood that the

loan would default, banks were able, according to Cathcart’s testimony, to mix these loans in

with other higher-quality loans through securitization such that the average FICO score was not

affected, and thus the credit rating of the security was not affected. Cathcart agreed with Senator

Kaufman’s response that “If we did this in any other business and then sold it to somebody like

we sold the mortgage-backed securities, that would be fraud. I mean, essentially, if you did this,

if a car company did it, they got five cars, junkers and good ones, and put them together and sold

them at the auction market, they would be called back and say, you can’t do that.”

       223.    Cathcart also testified to the “significant part [that] the rating agencies played in

the outsized nature of the securitization market. The ratings - - first of all, the incentives, I think,

are inappropriate where the issuers pay for the rating … [It is] inappropriate that the issuer

should pay the rating agency to rate the issuer’s paper. It seems to me the investor should be

paying for it if they are looking for third-party verification.”

       224.    Similarly, Randy Melby, former General Auditor of WaMu, testified before the

PSI that “relaxed credit guidelines, breakdowns in manual underwriting processes, inexperienced



                                                  80
subprime personnel, … coupled with a push to increase loan volume and the lack of an

automated fraud monitoring tool exacerbated the deterioration in loan quality.” He further

testified as to his belief that line managers at WaMu were often aware that loan originators were

knowingly sponsoring mortgage applications that contained misstatements, and that several

independent investigation in which he participated supported this conclusion.

               3.      WaMu Was Aware That Third Party Originators Were Abandoning
                       Their Underwriting Guidelines and Appraisal Standards

       225.    In addition to originating loans through its own vertically integrated operations,

WaMu management made a conscious decision to acquire risky loans through the conduit

program via which it made bulk purchases of subprime loans from the third-party originators

discussed below. An April 18, 2006 PowerPoint presentation to the WaMu Board of Directors

notes that the goal of the conduit program was to “Focus exclusively on high-margin products,”

including subprime and Alt-A loans.         Indeed, an excerpt from WaMu’s lender closing

instructions shows that third party originators who sold risky loans were eligible for yield

premium spreads.

       226.    These bulk purchases of high-risk loans were important to WaMu’s emergence as

a major RMBS issuer. A PowerPoint presentation by Defendant Beck dated June 11, 2007

states, “We can opportunistically acquire products and strategically distribute them through the

most profitable channels. By managing the distribution process we have access to information

that allows us to refine our origination efforts and improve execution,” and “[i]n just three years,

we’ve become the #2 ranked Non-Agency MBS issuer in 2006. Our rapid rise in the rankings is

fueled by our Conduit Program (2004), which focuses on high margin products.”

       227.    According to WaMu’s 10-K filing, at the end of 2006, WaMu’s investment

portfolio included $4 billion in subprime loans from Long Beach and about $16 billion in



                                                81
subprime loans from other parties. According to an OIG report on regulatory oversight of

WaMu, loan purchases from third party lenders and brokers represented between 48 and 70% of

WaMu’s single family residential loan production from 2003 to 2007.

       228.    WaMu maintained even lower underwriting standards in its conduit program than

it did in its own lending operations. A May 16, 2007 email chain from the OTS, WaMu’s

regulator, discusses the documentation standards that WaMu imposed on loans purchased from

third parties. In response to a query, “Does WAMU have any plans to amend its policies per no

doc loans?” OTS employee Benjamin Franklin wrote, “I have checked for this in the past and

found that they didn’t do true NINAs (no income or assets collected or verified) and the current

team also indicated that they still don’t do any. I replied as such to Magrini; however, at a recent

meeting, I double checked on this and found out that the Bank began doing NINA’s in 2006

through their conduit program. As such, all these loans are held for sale.”

       229.    By acquiring these loans from third parties rather than through its own operations,

WaMu hoped to dodge regulatory scrutiny. An April 27, 2006 email from WaMu CEO Killinger

states, “The Long Beach problems will no doubt be fodder for the OTS to caution us from

ramping up sub prime loans in portfolio. This may lead us to focus on the conduit and SMF

program to increase these assets for awhile.”

       230.    WaMu’s loan portfolio eventually suffered from rising defaults, which it passed

on to investors such as Plaintiff. The minutes to the December 12, 2006 meeting of the WaMu

Market Risk Committee note that:

               Mr. Lehmann then alerted the Committee to an analysis in-process
               whose preliminary results show an abnormally high number of
               delinquencies in a number of the 2006 Conduit Program
               securitizations. Mr. Lehmann noted that delinquency behavior was
               flagged in October for further review and analysis when recent
               securitization deals appeared to have more severe delinquency



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               behavior than experienced in past deals. The primary factors
               contributing to increased delinquency appear to be caused by
               process issues including the sale and securitization of delinquent
               loans, loans not underwritten to standards, lower credit quality
               loans and seller servicers reporting false delinquent payment
               status.

       231.    WaMu was also notified of poor underwriting on the part of third party

originators through the efforts of its due diligence vendor. Like JPMorgan and Bear Stearns,

WaMu contracted with Clayton to perform due diligence on loans that it had pooled for

securitization. Between the first quarter of 2006 and the second quarter of 2007, Clayton

reviewed 35,008 WaMu loans for underwriting compliance. Clayton determined that 27% of

these loans neither met underwriting guidelines nor possessed compensating factors sufficient to

justify making exceptions to the underwriting guidelines (Event 3). WaMu ignored many of

these underwriting failures, waiving 29% of those rejected loans back into its mortgage pools,

and sold RMBS containing these non-compliant loans to investors like Plaintiff ABP.

               4.     WaMu Offloaded Loans That It Had Identified as Fraudulent And/Or
                      Likely To Default Onto Unsuspecting Investors

       232.    Even though WaMu’s deficient lending and securitization practices were

repeatedly criticized by the OTS and FDIC, as well as WaMu’s own internal auditors and

reviewers, WaMu and Long Beach securitized loans that they had flagged as being especially

likely to default or containing fraudulent information. Defendant Beck testified before the PSI

that he did not check to see if loans “with identified fraud or underwriting defects” were removed

from securitization pools.

       233.    In September 2008, WaMu’s Corporate Credit Review team reported that, “The

controls that are intended to prevent the sale of loans that have been confirmed by Risk

Mitigation to contain misrepresentations or fraud are not currently effective. There is not a

systematic process to prevent a loan in the Risk Mitigation inventory and/or confirmed to contain


                                               83
suspicious activity from being sold to an investor,” and that, “Exposure is considerable and

immediate corrective action is essential.” The report also noted that the resources devoted to

fraud prevention were insufficient and that there was a lack of training focused on fraud

awareness and prevention. WaMu’s increased “strong reliance” on low documentation and

stated income loans was explicitly named as a driver of fraud.

       234.    Indeed, WaMu was not only employing inadequate safeguards with respect to

poorly performing loans, it was actively offloading the lowest quality loans to investors and

keeping the best for itself. Unbeknownst to investors like Plaintiff ABP, WaMu filled the loan

pools for some RMBS by picking out toxic loans that it wanted to remove from its own

inventory, since it considered them especially likely to default. For example, a recently released

email from John Drastal, Managing Director of trading for WaMu Capital, to Defendant Beck,

dated September 14, 2006, notes that after an investor conference in which equity investors

expressed concerns about the housing market, Defendant Casey “asked about the ability to

offload some Long Beach production.”

       235.    Likewise, an October 17, 2006 PowerPoint presentation to the WaMu Bank Board

of Directors by WaMu Home Loans President David Schneider, a document recently released by

the PSI, discusses how WaMu Bank dealt with the risks relating to Option ARMs. Teaser rates,

increasing principal balances and higher loss rates are all listed as “concerns,” and “periodic non

performing asset sales to manage credit risk,” is listed as a “mitigating procedure.”

       236.    Internal WaMu emails and memoranda obtained by the PSI show that on February

14, 2007, Defendant Beck, the head of WaMu’s Capital Markets Division, identified certain

recently-issued ARM loans as performing poorly and wanted to sell them “as soon as we can

before we loose [sic] the oppty.” In a later email, the Chief Risk Officer Cheryl Feltgen noted




                                                84
that this would help address the problem of rising delinquencies in WaMu’s portfolio, stating,

“Gain on sale is attractive and this could be a way to address California concentration, rising

delinquencies, falling house prices in California with a favorable arbitrage given that the markets

seems not yet to be discounting a lot for these factors.” Likewise, in a February 20, 2007 email

forwarding data on the largest contributors to delinquency, Feltgen wrote, “I know that this is

mostly an exercise about gain on sale, but we might be able to accomplish the other purpose of

reducing risk and delinquency at the same time.” Having identified loans that were particularly

prone to default, WaMu proceeded to securitize as many of them as possible, retaining for its

own portfolio only those that were completely unsalable. WaMu securitized more than $1

billion of these adversely selected Option ARM loans. As of February 2010, more than half of

them were in default.

       D.      THE THIRD PARTY ORIGINATORS OF THE MORTGAGE LOANS UNDERLYING
               THE CERTIFICATES ABANDONED THEIR UNDERWRITING GUIDELINES AND
               APPRAISAL STANDARDS

       237.    As discussed above, many of the underlying mortgage loans that the Defendants

packaged into securities and sold to Plaintiff were originated by third-party institutions and then

sold en masse to JPMorgan, Bear Stearns, WaMu, or Long Beach. The Offering Documents

associated with each of Plaintiff’s Certificates described each of the specific originators’

underwriting guidelines.

       238.    Defendants were aware of a collapse in underwriting standards on the part of the

Originators with whom they did business, including widespread failure to abide by stated

underwriting guidelines, permitting sales personnel and management to routinely override

underwriting decisions, pressuring appraisers to artificially inflate the values of mortgaged

properties, and making no efforts to verify the income of borrowers. Defendants were also

aware that, as a result of the Originators’ fraudulent appraisal practices, which made the


                                                85
borrowers appear to have more collateral than they actually did, the LTV values of the loans

were inflated. However, rather than putting an end to these corrupt practices or refusing to

purchase these defective loans, Defendants urged the Originators to make more and riskier loans.

       239.    The Offering Documents represented that the underlying mortgage loans were

originated in compliance with the underwriting and appraisal standards of the originators.

Several of the relevant originators involved in these transactions are now known to have, among

other things, ignored their own underwriting guidelines and used inflated appraisals during loan

generation. The questionable practices that were employed by many of these originators have

led to numerous allegations and investigations into their operations. In fact, as noted below,

faulty underwriting has led to the downfall of several of the originators whose loans JPMorgan,

Bear Stearns, WaMu and Long Beach bundled in these offerings.

       240.    The third party originators of the mortgage loans underlying the Certificates that

departed from stated underwriting guidelines with respect to the mortgages underlying Plaintiff’s

Certificates included, but are not limited to the following:

               1.      Aegis Mortgage Corporation

       241.    Aegis originated mortgage loans that were included in Issuing Trusts from which

Plaintiff purchased Certificates, including Bear Stearns Asset Backed Securities I Trust 2007-

HE4, and Bear Stearns Asset Backed Securities I Trust 2007-HE5. Aegis started as a privately

held mortgage banking company owned by three individuals. By 1998, the company was

generating $1 billion in annual loan volume. In 1998 and 1999, Cerberus Capital Management,

LP (“Cerberus”) made a $45 million investment in Aegis. With this cash, Aegis acquired two

extremely distressed mortgage production operations, UC Lending and New America Financial.

These and subsequent acquisitions enabled Aegis to grow from 150 employees in nine locations

in 1999 to 3,800 employees in over 100 locations in 2005. By 2006, Aegis was ranked as the


                                                 86
13th largest subprime lender in the country, generating close to $20 billion in annual

originations. In eight years, the company’s subprime originations grew by an incredible 1,750%.

       242.   Aegis’ astronomic growth was fueled by an insatiable appetite for high fee, high-

risk mortgages. “In late 2006, the company … couldn’t issue mortgages fast enough for the Wall

Street machine that used them to create high-risk, very profitable bonds.” Katie Benner, The

Darker Side of Buyout Firms, FORTUNE, August 20, 2007. To satisfy its enormous appetite,

Aegis loosened its loan underwriting standards to the point of near abandonment by 2006. A

large portion of the loans Aegis originated during this time were in fact purchased from

unlicensed mortgage brokers. Because Aegis was selling all the loans it originated to investment

banks like JPMorgan Chase, Bear Stearns, and WaMu for securitization, underwriting standards

were thrown by the wayside. Quantity became more important than quality, as guidelines were

consistently ignored and more and more loans approved.

       243.   Eventually, the bad loans caught up with Aegis. A news report issued on August

6, 2007, announced that Aegis could not meet all of its existing funding obligations. Alistair

Blair, Aegis Mortgage Suspends All Loan Originations, MARKET WATCH, August 6, 2007. On

August 13, 2007, the company was forced to file for bankruptcy protection. Jonathan Stempel,

Aegis Mortgage Files for Chapter 11 Bankruptcy, REUTERS August 13, 2007.

       244.   In November of 2008, the Office of the Comptroller of the Currency (“OCC”)

compiled an analysis of the ten mortgage originators with the highest rate of non-performing

subprime and Alt-A loans, originated from 2005 to 2007, in the ten U.S. metropolitan areas with

the highest foreclosure rates in the first half of 2008. This report was titled “Worst Ten in the

Worst Ten.” Alarmingly, only 21 mortgage originators, in various combinations, occupied the

“Worst Ten” slots in the “Worst Ten” metropolitan areas with the highest foreclosure rates.




                                               87
Aegis was named one of the “Worst Ten” in this report. By the first half of 2008, 2,058

subprime or Alt-A mortgage loans originated by Aegis, in the ten metropolitan areas hardest-hit

by foreclosures, were already in foreclosure.

               2.     Argent Mortgage Company

       245.    Argent originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including Washington Mutual Mortgage Pass-Through

Certificates, WMALT Series 2007-HY1. Argent was incorporated in 2001 and was a wholly-

owned subsidiary of ACC Capital, operating as one of the nation’s largest subprime lenders.

       246.    Argent’s success in the mortgage-lending market was attributable to its loan

originations using fraudulent loan applications and its departure from sound underwriting

practices. In 2005, the Florida Attorney General initiated an investigation against Argent after

numerous complaints alerted the office that Argent was providing mortgages to homeowners for

home repair projects using fraudulent documents and loan applications. Investigators discovered

nearly 130 loans funding nearly $13 million that were approved based on fraudulent applications.

As a result of these investigations, Argent’s former vice president Orson Benn was sentenced to

18 years in prison in September 2008, for racketeering, mortgage fraud and grand theft.

       247.    According to a December 7, 2008, article describing its investigation into

Argent’s dismal lending practices, the MIAMI HERALD discovered that several former Argent

employees engaged in mortgage fraud, including Benn, who actively assisted mortgage brokers

in falsifying borrowers’ financial information by “tutoring … mortgage brokers in the art of

fraud.” Benn himself stated that the “accuracy of loan applications was not a priority,” but

rather, the company made money by bundling mortgages and selling them to investors on Wall

Street. To increase the flow of loans generated, Benn taught brokers to prepare phony income

statements and doctor credit reports.


                                                88
       248.    During the course of its investigation, the MIAMI HERALD obtained every loan

application generated by one Argent broker between May 2004 and September 2005. In a

January 29, 2009 article, the paper revealed that out of 129 applications, 103 contained “red

flags,” such as “non-existent employers, grossly inflated salaries and sudden, drastic increases in

the borrower’s net worth.” The article stated that the “simplest way for a bank to confirm

someone’s income is to call the employer. But in at least two dozen cases, the applications

show[ed] bogus telephone numbers for work references.” Argent’s verification process was so

deficient that a “borrower [who] claimed to work a job that didn’t exist … got enough money to

buy four houses.” Another borrower “claimed to work for a company that didn’t exist – and got

a $170,000 loan.”

       249.    The CLEVELAND PLAIN DEALER also reported in a May 11, 2008, article that

industry leaders believed that “lower-echelon employees of companies like Argent actively

participated in fraud.” For example, Jacqulyn Fishwick, who worked for over two years as an

underwriter and account manager at an Argent loan-processing center near Chicago, had

personally seen “some stuff [she] didn’t agree with” and witnessed some Argent employees who

“played fast and loose with the rules.” Fishwick also saw “[Argent] account managers remove

documents from files and create documents by cutting and pasting them.”

       250.    In April 2010, the FCIC heard testimony from several former Citigroup

executives as part of the FCIC’s investigation regarding the causes of the subprime lending

meltdown. Richard Bowen, Citigroup’s former chief underwriter for CitiMortgage, told the

FCIC panel in his April 7, 2010, testimony that “he had warned management … of the

company’s mortgage risk beginning in 2006,” when he discovered that more than 60% of the




                                                89
mortgages being bought and sold by Argent were defective; advice apparently not heeded, since

Citigroup acquired Argent in 2007.

              3.      Chevy Chase Bank, F.S.B.

       251.   Chevy Chase Bank, F.S.B. (“Chevy Chase”) originated mortgage loans that were

included in Issuing Trusts from which Plaintiff purchased Certificates, including Bear Stearns

ALT-A Trust 2004-6.

       252.   Chevy Chase, a federally chartered savings and loan association doing business

primarily in the District of Columbia, Maryland, and Virginia, was purchased by Capital One

Financial Corporation (“Capital One”) in February of 2009, in a transaction valued at

approximately $520 million. As part of the purchase, Capital One was required to write off

approximately “$1.75 billion in anticipated losses from Chevy Chase’s big portfolio of toxic

mortgage loans.” Capital One Buys a Rival Bank for $520 Million, THE NEW YORK TIMES,

December 3, 2008.

       253.   According to a December 4, 2008, article in THE WASHINGTON POST titled

Capital One to Buy Chevy Chase, Chevy Chase encountered financial trouble as a result of the

subprime mortgage crisis due to its heavy emphasis on originating particularly risky “option

adjustable-rate mortgages.” These loans allowed borrowers to defer part of the monthly payment

for an established term. During 2007 and 2008, Chevy Chase’s financial performance suffered

as the deferred payments came due and significant numbers of borrowers defaulted on their

mortgages. Chevy Chase’s non-performing mortgage assets “more than tripled to $490 million

between September 2007 and June 2008.” As of December 2008, Chevy Chase still held

approximately $4 billion in option ARM mortgage loans.




                                             90
       254.    According to another WASHINGTON POST article the next day, Chevy Chase

“continued making loans even as the market was getting worse in 2007 and held more of these

risky [option-ARM] mortgages than many other banks, according to Capitol One executives.”

       255.    On April 20, 2011, the Federal Home Loan Bank of Boston (“FHLBB”) initiated

an action alleging that subprime mortgage originators, including Chevy Chase, disregarded credit

risk and quality controls, exerted pressure on appraisers to inflate their appraisals, and engaged in

predatory lending in order to generate higher subprime loan volumes. See Fed. Home Loan Bank

of Boston v Ally Fin., Inc., Civ. A. No. 11-1533 (Mass. Sup. Ct. Apr, 20, 2011). The complaint

similarly alleges that Chevy Chase effectively abandoned its underwriting standards in

connection with originating subprime mortgages by, inter alia, allowing systematic exceptions to

their stated underwriting standards without adequate justification.

       256.    After abandoning originating standards, Chevy Chase engaged in a campaign of

deception to ensure securitization of the originated mortgages and the profits that followed,

misrepresenting the LTVs of the collateralized mortgages, deceiving ratings agencies, and lying

about confirming clean chain of title.

       257.    The failure of Chevy Chase to apply their stated underwriting guidelines and the

success of their campaign of deception is evident in the high rates of delinquency and foreclosure

in mortgage pools held by the FHLBB. As of May 26, 2011, fully 29.57% of the loans

securitized by Chevy Chase and sold to the FHLBB were at least 90 days delinquent, had

foreclosure proceedings pending, or the mortgage holder had recovered title from the borrower.

       258.    On January 16, 2007, a federal district court in Wisconsin found that Chevy

Chase violated the Truth In Lending Act (“TILA”) by failing to disclose salient features of a

mortgage. The plaintiffs alleged Chevy Chase offered them a “cashflow payment option” loan, a




                                                 91
type of “option ARM” mortgage, whereby Plaintiffs made fixed low minimum monthly

payments based on a static interest rate, but the interest rate charged actually adjusted monthly so

that while the payment amount stayed fixed, the outstanding balance of the loan increased

through negative amortization (capped at 110% of the original loan). Plaintiffs alleged that

Chevy Chase’s disclosures were misleading and that they believed the initial interest rate was

fixed. The stamp used by Chevy Chase on its disclosure forms stated “WS Cashflow 5-Year

Fixed Note Interest Rate 1.950%.” The district court granted summary judgment in favor of

Plaintiffs, authorizing rescission of the mortgage contract and awarding attorney’s fees to

Plaintiffs.

               4.      CIT Group / Consumer Finance, Inc.

        259.   CIT Group originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including Washington Mutual Asset-Backed Certificates

WMABS Series 2007-HE2 Trust. CIT Group originally began its operations as a commercial

lender, but after Jeffrey M. Peek joined the company as CEO in 2003, CIT Group got more

involved in the consumer finance arena and ramped up its home mortgage loan portfolio. By

2005, the company had originated or acquired more than $4.3 billion in subprime loans.

        260.   CIT Group practiced unscrupulous subprime lending and underwriting practices,

such as providing loans to borrowers with poor credit ratings, funding loans with little or no

supporting financial documentation and offering mortgages with high loan-to-value ratios, all in

an effort to increase the amount of CIT Group’s loan originations even further. By the third

quarter of 2006, the company’s subprime loan assets soared to $9.8 billion.

        261.   On July 25, 2008, a securities class action lawsuit was filed in the United States

District Court for the Southern District of New York against CIT Group and its officers. See In

re CIT Group Inc. Secs. Litig., No. 1:08-cv-06613 (S.D.N.Y. filed July 25, 2008). The complaint


                                                92
alleged, inter alia, that the company made false statements and omissions regarding its subprime

home lending business and financial results. Specifically, the complaint claimed that CIT Group

and its officers did not disclose that: (i) the company was observing reduced credit standards in

an effort to boost loan originations; (ii) by the end of 2006, CIT Group had “substantially

reduced the amount of documentation necessary, as well as the minimum FICO score, for

subprime loan approval”; (iii) the company had been engaging in increasingly risky home loans,

“including no documentation, stated income loans…”; and (iv) the company was using

adjustable rate mortgages (“ARMs”) and “very loose” lending standards to drive loan

origination.

       262.    CIT Group and the other defendants thereafter filed a motion to dismiss the

complaint. On June 10, 2010, the court denied defendants’ motion to dismiss in its entirety,

specifically finding that plaintiffs had adequately alleged that CIT Group had made false

statements, including claims that the defendants: (1) “failed to disclose the lowering of CIT’s

credit standards…”; (2) “misrepresented the performance of CIT’s subprime home lending and

student loan portfolios”; (3) made “several changes in CIT’s lending standards that effectively

loosened requirements for a subprime home loan, and [that the defendants] were aware of and

approved these changes”; and (4) “made written and oral statements indicating that CIT had

‘disciplined lending standards’ …[,] was ‘much more conservative’ than other lenders …and that

CIT had ‘tightened home lending underwriting, … [and] raised minimum FICA requirements.’”

A motion for class certification is currently pending. In re CIT Group Inc. Secs. Litig., No. 1:08-

cv-06613 (S.D.N.Y., Opinion and Order dated June 10, 2010).

       263.    CIT Group announced in August 2007 that it was shutting down its home lending

business as a result of weak investor demand and heavy losses. On July 1, 2008, the company




                                                93
sold its home lending business to Lone Star Funds for $1.5 billion in cash, plus $4.4 billion of

assumed debt. In December 2008, the federal government agreed to award CIT Group “bank

holding company” status and gave the company $2.33 billion in Troubled Asset Relief Program

(“TARP”) funds. The funds did not, however, resolve CIT Group’s financial struggles, and by

the end of 2009, the company had filed for Chapter 11 bankruptcy reorganization.

               5.      EquiFirst Corporation

       264.    EquiFirst originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including Bear Stearns Asset Backed Securities Trust

2007-2. EquiFirst was engaged in the business of originating and selling “non-conforming” loan

products, including subprime, Alt-A, and jumbo mortgage loans collateralized by one-to-four

family residential properties. For 2006, EquiFirst’s subprime and Alt-A residential mortgage

originations totaled approximately $10.7 billion. In 2007, EquiFirst was the twelfth-largest

subprime wholesale mortgage originator in the United States, originating $3.8 billion of

subprime home loans.

       265.    EquiFirst focused on “innovative” subprime products that relied on, among other

things, inappropriately lax underwriting standards and temporary payment reductions, offering

loans to borrowers with credit scores as low as 520. As a consequence, EquiFirst’s residential

loan portfolio (including subprime mortgages), significantly deteriorated. Regions Financial

Corporation (“Regions”), the then-parent company of EquiFirst, recorded $142 million in after-

tax losses which it later attributed to significant and rapid deterioration of the subprime market

during the first three months of 2007. Additionally, Regions’ 2007 10-K revealed loan losses

from continuing operations (including subprime mortgages made by EquiFirst) that more than

tripled from 2006 levels, increasing from $142.4 million by the end of 2006 to $555 million by

the end of 2007.


                                               94
       266.   On January 19, 2007, Barclays Bank, PLC announced that it had entered into an

agreement with Regions to acquire EquiFirst for $76 million. Regions CEO Dowd Ritter later

said, “I would have given [EquiFirst] away. If we didn’t get rid of it, the whole company would

be gone by now.” Triumph and Turmoil Define CEO’s Legacy, THE BIRMINGHAM NEWS, March

28, 2010. On February 17, 2009, less than two years after the acquisition, Barclays shut down

EquiFirst due to the decline in the market for subprime mortgages.

       267.   In September 2011, U.S. Bank National Association (“U.S. Bank”) initiated a

lawsuit in federal court in Minneapolis against EquiFirst and others, alleging that EquiFirst

falsely assured buyers of the creditworthiness of the loans being offered, and that as of June

2011, over 45% of the original loan balance had been liquidated, while over 30% of the

remaining loans were delinquent. See U.S. Bank Nat’l Ass’n v. WMC Mortgage Corp., et al.,

No. 0:11-cv-02542 (D. Minn. filed Sept. 2, 2011). According to a September 6, 2011, article in

BLOOMBERG about the case, one investor reviewed 200 loan filed related to the securities at

issue, and identified material breaches of representations or warranties in 150, or 75% of them.

In 55 of the loans, according to the article, the investor found misrepresentations of borrower

income and/or employment. In one example, a borrower’s loan application stated that he earned

over $14,000 per month for performing “account analysis.”            According to the borrower’s

income-tax returns, however, he earned $1,548 per month as a taxi driver.

       268.   These allegations are echoed in a September 2, 2011 complaint filed by the

Federal Housing Finance Agency, which states that EFC Holdings, through its EquiFirst unit,

routinely and egregiously departed from its stated underwriting guidelines when originating

subprime mortgages. See Fed. Hous. Fin. Agency v. Ally Fin. Inc., et al., No. 652441-2011 (Sup.

Ct., NY Co. filed Sept. 2, 2011). This led, the suit alleges, to material false and misleading




                                               95
statements or omissions regarding compliance with underwriting guidelines in the Prospectus

Supplements for several securities purchased by Freddie Mac, in violation of federal securities

laws.

               6.     Fieldstone Mortgage Company

        269.   Fieldstone originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including J.P. Morgan Mortgage Acquisition Trust 2006-

HE3, Bear Stearns Asset Backed Securities I Trust 2007-HE3, and Bear Stearns Asset Backed

Securities I Trust 2006-HE9. Fieldstone had a national wholesale origination business serving

4,300 independent mortgage brokers, as well as a national retail origination business with 32

processing offices. Fieldstone originated approximately $12.5 billion of loans in 2005 and 2006

and was at one point among the top 20 subprime lenders in the nation.

        270.   A January 5, 2008, article in THE BALTIMORE SUN, “A Lender’s Recipe for

Downfall,” outlined Fieldstone’s culture of excessive risk taking and blatant disregard for sound

underwriting practices. A prime example of this culture was the loan program called “South

Street” which allowed ultra-low credit score consumers just exiting bankruptcy to get a mortgage

with few questions, and without submitting pay stubs or tax returns. The program was explicitly

created to keep loan origination volume up as competitors started flooding the market during the

real estate boom.

        271.   Fieldstone’s underwriting standards were so poor that in 2009, it was a target of a

joint undercover FBI/Department of Housing and Urban Development (“HUD”) investigation

“Operation Madhouse.” The investigation had undercover law enforcement agents pose as straw

buyers of houses seeking assistance in financing and closing fraudulent mortgage transactions.

        272.   During Operation Madhouse, a Fieldstone loan officer was led to believe that a

prospective borrower was using a fictitious name and intended to default on the loan. In fact, the


                                               96
borrower was a government informant.          The loan officer prepared and submitted a loan

application that she knew to be fraudulent and gave the informant the name of a man who would

provide a false verification of employment. The loan officer was ultimately indicted for wire

fraud.

         273.   In September 2007, Morgan Stanley Mortgage Capital Holdings LLC filed suit

against Fieldstone, demanding that Fieldstone repurchase 72 mortgage loans that had

experienced first payment defaults, experienced EPDs, or whose loan files contained

misrepresentations.

         274.   Fieldstone filed for protection under Chapter 11 of the U.S. Bankruptcy Code in

November 2007. In its bankruptcy filings it disclosed approximately $67.5 in liabilities to Wall

Street investment banks, including $38.4 million in liability to Morgan Stanley and $15.3 million

in liability to Bear Stearns.

                7.      GMAC Mortgage Corporation

         275.   GMAC originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including Bear Stearns ALT-A Trust 2004-6.

         276.   GMAC was founded in 1985 by the finance subsidiary of General Motors and

grew to be the fourth largest U.S. mortgage loan originator by 2010, originating tens of billions

of dollars of mortgages every year. In addition to selling loans to financial institutions like Bear

Stearns, GMAC also used some of the loans it originated to issue its own RMBS. The quality of

the loans in these GMAC securitizations provides information as to the underwriting standards

applied by GMAC, or the lack thereof. MBIA Insurance Corporation has analyzed the loan files

for 4,804 of the delinquent loans in three GMAC RMBS pursuant to a securities fraud lawsuit

against GMAC and found that 89% of the loans reviewed contained one or more breaches of the

mortgage loan representations that had been made in the offering documents. See MBIA v.


                                                97
GMAC Mortgage, LLC, No. 600837-2010 (Sup. Ct., NY Co. filed Apr. 1, 2010). These included

routine breaches of underwriting standards, unreasonable stated incomes in loan applications,

failure to verify borrower employment or prior mortgage payment history, approval of loans to

borrowers with ineligible collateral or credit scores, incomplete documentation and missing title

instruments, and breaches of state predatory lending laws.

       277.    Former GMAC personnel interviewed by Thrivent Financial (“Thrivent”) in

connection with a separate securities fraud lawsuit confirm that GMAC management was aware

of and encouraged employees to disregard of underwriting standards so as to generate more

loans. See Thrivent Fin. for Lutherans v. Countrywide Fin. Corp., No. 11-5830 (Minn. State

Dist. Ct. filed Apr. 27, 2011); A senior wholesale underwriter stated that her supervisors

frequently overrode her underwriting decisions and closed loans that they knew were unlikely to

be repaid. Her supervisors’ bonuses depended on the volume of closed loans, so they were

motivated to push even questionable loans through, waiving faulty appraisals and unreasonable

stated incomes. The witness also stated that GMAC did many no-income-verification loans, and

that GMAC personnel referred to these loans as, “liar loans, because we knew damn well they

were lying. You can’t tell me a manicurist in L.A. was making $12,000 a month.” The witness

linked the inappropriate lending to GMAC’s securitization business, noting that the trading desk

would grant exceptions merely to fill loan pools and that trading personnel with no underwriting

experience were permitted to sign off on loans.

       278.    In addition to adopting skewed incentive structures and tolerating mortgage fraud,

GMAC Mortgage also weakened its underwriting standards by utilizing badly flawed

underwriting software. Ninety percent of loans were sent through the company’s Desktop




                                                  98
Underwriter program, which did not require documentation, and the program rarely turned down

a loan.

          279.   Former employees quoted in the complaint brought by Thrivent have discussed

the failings of Desktop Underwriter. One witness, a senior underwriter at GMAC Mortgage

from 1986 to 2008, said that GMAC Mortgage used human underwriters only to approve loans

that could not be processed through its software, and that the software did not require verification

of income or assets.

          280.   GMAC could have detected fraudulent loans had it chosen to look beyond the

basic information in the computer files. However, because the underwriting was automated,

mortgage brokers could submit information based on the criteria needed to close a loan rather

than the borrower’s actual circumstances.

          281.   Freddie Mac performed an analysis of individual loan files underlying RMBS in

connection with its lawsuit against GMAC. Its analysis covered 21 RMBS and revealed that in

each case, the offering materials had overstated the owner-occupancy rates by between 8.48%

and 13.10%. Freddie Mac’s review similarly revealed that in each case, the offering documents

overstated the percentage of loans with low loan-to-value (“LTV”) ratios (defined as LTV ratios

less than 80%) by between 12.24% and 49.08%. The offering documents also understated the

percentage of underwater loans (loans with LTV ratios greater than 100%) by between 8.18%

and 33.81%.

          282.   A similar review undertaken by Mass Mutual also revealed significant

misrepresentations of LTV data. Mass Mutual found that for 17 of the 18 GMAC RMBS it

analyzed, the offering documents had understated the weighted average LTV ratio by between

4.23% and 16.77% and understated the percentage of loans with high LTV ratios (defined as




                                                99
LTV ratios greater than 90% or 100%) by between 4.54% and 39.08%. Only one of the RMBS

examined did not misrepresent the percentage of loans with high LTV ratios.

              8.      GreenPoint Mortgage Funding, Inc.

       283.   Greenpoint originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including Bear Stearns ALT-A Trust 2004-6; SACO I

Trust 2005-5; and Washington Mutual Mortgage Pass-Through Certificates, WMALT Series

2007-OC2. GreenPoint specialized in non-conforming and Alt-A mortgages which generated

higher origination fees than standard loans. At one time, GreenPoint originated $25 billion of

mortgage loans a year nationwide and was one of the nation’s largest originators of Alt-A loans.

       284.   Like the other third-party originators, GreenPoint’s apparent business success was

built upon the abandonment of its stated underwriting guidelines. For example, according to

GreenPoint’s origination guidelines, the loans it originated were supposed to be based on

borrower creditworthiness and the value of the collateral underlying the mortgage loan.

Although stated income or no documentation loans were based on a borrower’s representations

about his or her ability to repay, with little or no documentation to substantiate those

representations, GreenPoint’s underwriting guidelines generally required the highest level credit

scores and low LTV ratios for these loans.        GreenPoint’s employees, however, routinely

extended these loans to borrowers with weak credit.

       285.   According to a November 13, 2008, BUSINESSWEEK article entitled, Sex, Lies and

Subprime Mortgages, GreenPoint’s employees and independent mortgage brokers targeted more

and more borrowers who had no realistic ability to repay the loans being offered to them. In

addition, GreenPoint created a system for overriding loan rejections. If underwriters denied an

application based upon creditworthiness, managers could override their decisions and approve




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the loans anyway. GreenPoint employees used this system to increase their own commissions at

the expense of their underwriting guidelines.

       286.    In 2006, Capital One acquired GreenPoint as part of the acquisition of North Fork

Bancorp. In October 2007, GreenPoint ceased accepting new loan applications. GreenPoint was

eventually liquidated by Capital One in December 2008.          As stated by the WASHINGTON

BUSINESS JOURNAL in an August 21, 2007, article entitled Capital One to shutter mortgage-

banking unit, cut 1,900 jobs, Capital One took an $860 million write-down due to mortgage-

related losses associated with GreenPoint’s origination business.

       287.    GreenPoint’s   business    model   depended     on    others’   acceptance   of   its

representations regarding the quality of its products and its commitment to cover any losses

resulting from breaches of those representations. GreenPoint, however, assured its investors that

its “no-doc” or “low-doc” loan originations were amply supported by borrowers’ ability to repay

loans in a timely fashion. GreenPoint also maintained that it conducted a quality control review

of the loans that it acquired from approved correspondent lenders.

       288.    As a result of these misrepresentations, GreenPoint has been the subject of

lawsuits relating to its loan origination practices and lax underwriting standards. In February

2009, U.S. Bank filed a breach of contract action against GreenPoint in the Supreme Court of

New York for failure to repurchase $1.83 billion in loans that GreenPoint originated between

September 2005 and July 2006. See U.S. Bank Nat’l Ass’n v. GreenPoint Mortgage Funding,

Inc., No. 09-600352 (Sup. Ct., NY Co. filed Feb. 5, 2009). The complaint alleged that the

company violated numerous representations and warranties, including:

               •      pervasive misrepresentations and/or negligence with respect to the
                      statement of the income, assets or employment of the borrower;




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               •      misrepresentations of the borrower’s intent to occupy the property as the
                      borrower’s residence and subsequent failure to so occupy the property;

               •      inflated and fraudulent appraisal values; and

               •      pervasive violations of GreenPoint’s own underwriting guidelines and
                      prudent mortgage-lending practices, including loans made to borrowers (i)
                      who made unreasonable claims as to their income, (ii) with multiple,
                      unverified social-security numbers, (iii) with credit scores below the
                      required minimums, (iv) with debt-to-income and/or loan-to-value ratios
                      above the allowed maximum or (v) with relationships to GreenPoint or
                      other non-arm’s-length relationships….

       289.    U.S. Bank hired a consultant to review the loan documentation for compliance

with GreenPoint’s representations and warranties regarding the sales. The consultant found that

an overwhelming 93%, or 963 out of a sample of 1,030 loans sold, with a total principal balance

of $91.8 million, did not comply with GreenPoint’s representations and warranties contained in

the sale agreements. Defendants filed a motion to dismiss the complaint, and on March 3, 2010,

the court denied the motion in part, allowing all of the claims against GreenPoint to proceed.

U.S. Bank Nat’l Ass’n. v. GreenPoint Mortgage Funding, Inc., No. 09-600352 (Sup. Ct., NY Co.

Order dated Mar. 3, 2010).

               9.     Lenders Direct Capital Corporation

       290.    Lenders Direct originated mortgage loans that were included in Issuing Trusts

from which Plaintiff purchased Certificates, including Washington Mutual Asset-Backed

Certificates WMABS Series 2007-HE2 Trust. Lenders Direct was one of the riskiest mortgage

lenders in the U.S, according to a 2007 study by SMR Research Corp. The study examined

county courthouse lien records and data filed with the federal government and assigned each

lender a risk score based on six credit risk criteria, namely, LTV ratios; the percentage of loans

made to subprime borrowers; the percentage of stated income loans; how often the lender

packaged two loans together; the percentage of loans originated with adjustable rates; and the



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percentage of loans with low “teaser” starting rates. A risk score of 1,000 was the industry

average, and nearly all lenders with risk scores above 1,750 were bankrupt, sold, closed, or

partially closed. Lenders Direct’s risk score was 2,610, making it the third-riskiest lender in the

country.

       291.    Lenders Direct closed its wholesale division in February 2007, citing lack of

investor demand and the state of the subprime lending industry.

       292.    In June 2007, Household Financial Services filed suit against Lenders Direct,

demanding that Lenders Direct repurchase mortgage loans that did not meet representations and

warranties, for reasons including inflated borrower incomes and assets, inflated appraisal values,

misrepresentations regarding borrower occupations, misrepresentations regarding owner-

occupancy, falsified documents, EPDs, and first payment defaults. HSBC Mortgage Servs., Inc.

v. Lenders Direct Capital Corp., No. 1:07-cv-03115 (N.D. Ill. filed June 4, 2007).

               10.    Novastar Mortgage, Inc.

       293.    Novastar originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including J.P. Morgan Mortgage Acquisition Trust 2006-

HE3. NovaStar was one of the top twenty mortgage originators in 2007. Like the other

Originators described herein, NovaStar’s rise was accompanied by material departures from its

stated underwriting guidelines.

       294.    According to a federal securities class action lawsuit filed on October 19, 2007 in

the United States District Court for the Western District of Missouri, from at least January 2006

onwards, NovaStar routinely deviated from its underwriting guidelines so that more and more

loans could be approved and then securitized, earning NovaStar large profits. For example,

NovaStar began granting numerous exceptions, such as LTV exceptions, credit score exceptions,

and also inflated property value appraisals. According to a former underwriter at NovaStar’s


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Independence, Ohio office, the Company maintained a phone-in “help desk,” referred to as

“NovaStar Solutions,” that aided the account executives in pre-clearing exceptions for loans that

were unusual and that would not be approved in the normal underwriting process. In fact, the

“NovaStar Solutions” help desk had more authority to grant exceptions for loans prior to closing

than the underwriters who examined the loans.         In March 2006, NovaStar weakened its

underwriting standards further when it lowered the minimum required credit score for

individuals seeking a 100% LTV loan to 580.

       295.    According to another former underwriter, NovaStar advocated “transactional

thinking,” whereby, underwriters were told to approve or deny a loan application by assessing

whether a particular loan “made sense,” regardless of NovaStar’s guidelines.          Essentially,

underwriters could be creative with the underwriting guidelines and use their personal judgment

in applying them, except for the credit score. For example, the guidelines provided that a

borrower needed “time on job” of at least two years. However, if a borrower had an employment

gap of six months but had not missed a credit payment during that time, then the underwriter

could make an exception. In this sense, the guidelines were just parameters and the “unspoken

law” was to make loans.

       296.    A further way by which NovaStar departed from its underwriting guidelines was

to allow for loans to be re-written, even during the underwriting process, to ensure approval. For

example, according to one witness, loans that were presented to the underwriters as complete,

full documentation loans often were in fact incomplete, lacking proof of salary information or

clearly showing that a proposed borrower’s bank statements contradicted the information they

had affirmed on the application. In many such cases, rather than rejecting the loan because of




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the defects, the underwriters and account executives would merely discard the contradicting

information and approve it as a low documentation or no documentation loan.

       297.    At the same time that it was facilitating the abandonment of its underwriting

guidelines, NovaStar began to dismantle the internal checks that had previously been installed to

monitor deviations from underwriting guidelines. PFQC was created to periodically report to the

NovaStar’s Credit Committee about trends in the underwriting process. Beginning in late 2005,

PFQC saw a massive increase in deviations from the policies and practices that underwriters and

account executives were supposed to follow in the loan funding process. Where loans in the past

were granted one exception in the underwriting process, the PFQC auditors were routinely seeing

three and four exceptions in loans.

       298.    As the number of loans deviating from NovaStar’s underwriting guidelines

increased, NovaStar took steps to reduce the number of PFQC auditors, as well as other auditors,

thus preventing the performance of many audits on the loans NovaStar was funding. According

to a former quality control auditor who worked in the Post-Closing department in Kansas City,

the result of this was that fewer funded loans were audited for quality; of those loans that were

audited and reviewed, many variances from and exceptions to the underwriting guidelines that

previously were flagged and recorded as “high risk” were overlooked in the audit process and

removed from the company’s system; and it became much more difficult to address and resolve

questions raised by outside investors concerning the specific loans in the pools they were

considering purchasing. By March 2006, two of the managers of the PFQC group, including the

Company’s Chief Credit Officer, departed from the company.

       299.    In February 2007, NovaStar disclosed that loans made in 2006 were defaulting at

a “torrid” rate. According to an April 1, 2007 NEW YORK TIMES article authored by Gretchen




                                              105
Morgenson and Julie Creswell, entitled Borrowing Trouble, 53% of the loans underwritten by

NovaStar in 2006 did not have full borrower documentation attached to them, and NovaStar’s

early payment default rate for loans underwritten in 2006 was 8.19%.

       300.    NovaStar’s complete abandonment of its underwriting guidelines brought about

its eventual collapse. In early 2008, NovaStar completely discontinued its mortgage lending

operations and sold its mortgage servicing rights to Saxon Mortgage Services, Inc.           On

September 12, 2008, an involuntary petition for liquidation under Chapter 7 was filed against it

in the U.S. Bankruptcy Court for the District of Delaware.

               11.      Quicken Loans, Inc.

       301.    Quicken originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including SACO I Trust 2005-5 and Washington Mutual

Mortgage Pass-Through Certificates, WMALT Series 2006-AR10. Quicken is the nation’s

largest online mortgage lender and the fifth largest retail mortgage lender. It closed more than

$25 billion in home loans in 2009. Quicken originated risky loans, including Alt-A loans and

Option ARMs.         Quicken customers, salespeople and loan purchasers have all alleged that

Quicken inflated borrower incomes and knowingly relied on false appraisals.

       302.    In June 2008, Wells Fargo Bank N.A. filed suit against Quicken, demanding that

Quicken repurchase approximately $4 million of mortgage loans that did not meet

representations and warranties, for reasons including inflated borrower incomes and appraisal

values. Wells Fargo Bank, N.A. v. Quicken Loans, Inc., No. 2:08-cv-12408-SJM-SDP (E.D.

Mich. filed June 6, 2008).

       303.    A number of other lawsuits have been filed in West Virginia and Michigan

alleging that Quicken used false and inflated appraisals to approve loans. In one of these cases,

the appraisal obtained by Quicken assigned a value of $194,500 to a house worth only


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approximately $117,000. In another, Quicken indicated to a borrower that it valued a property at

$120,000, only to accept an appraisal value of $153,0000 several months later.

          304.   According to a February 4, 2011 article from the Center For Public Integrity,

former Quicken loan salespeople have testified that Quicken management urged them to falsify

borrower incomes on loan applications and lock customers into higher interest rates even if they

qualified for lower rates. One employee testified that her sales director told her, “to simply pick

an income level that would be approved by underwriting rather than use the customers’ actual

income.” Another testified that he sometimes increased loan applicants’ incomes by as much as

400%.

                 12.    ResMAE Mortgage Corporation

          305.   ResMAE originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including J.P. Morgan Mortgage Acquisition Trust 2006-

HE3 and J.P. Morgan Mortgage Acquisition Trust 2006-RM1. ResMAE Mortgage Corporation

was a nationwide mortgage banking company which, originated, sold, and serviced subprime

mortgages. By 2006, ResMAE was one of the fastest growing subprime lenders in the United

States.

          306.   Because ResMAE lacked the finances to fund loans, it would enter into

agreements with financial institutions like JPMorgan Chase to provide a line of credit. Shortly

after originating the loan, ResMAE would sell it to repay its line of credit to the financial

institution.

          307.   According to BLOOMBERG, ResMAE made $7.7 billion in loans during 2006, up

11% from 2005, placing it twenty-first among U.S. subprime lenders. Unfortunately, ResMAE’s

loans proved to be poorly underwritten due to ResMAE’s abandonment of its underwriting

standards. DataQuick, a national database of real estate information, reported that approximately


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two-thirds of the loans that ResMAE made in 2006 are now in default. On February 12, 2007,

ResMAE filed for Chapter 11 bankruptcy.

       308.    The Offering Documents for the loans ResMAE originated contained the

following statements regarding ResMAE’s underwriting guidelines:

               The underwriting standards of ResMAE are primarily intended to
               assess the ability and willingness of the borrowers to repay the
               debt and to evaluate the adequacy of the mortgaged property as
               collateral for the mortgage loan. ResMAE considers, among other
               things, a mortgagor’s credit history, repayment ability and debt
               service-to income ratio (referred to herein as the “Debt Ratio”), as
               well as the value, type and use of the mortgaged property.

                                        *       *      *

               On a case by case basis, ResMAE may determine that, based upon
               compensating factors, a prospective mortgagor not strictly
               qualifying under the underwriting risk category guidelines
               described below warrants an underwriting exception.
               Compensating factors may include, but are not limited to, low
               loan-to-value ratio, low Debt Ratio, substantial liquid assets, good
               credit history, stable employment, and time in residence at
               applicant’s current address.

J.P. Morgan Acquisition Trust 2006-HE3 Prospectus Supplement at S-53.

       309.    In reference to the loans that ResMAE originated, the Offering Materials

represented that the property underlying the loan was properly appraised and subject to adequate

quality control procedures:

               The underwriting guidelines of ResMAE are applied in accordance
               with a procedure which complies with applicable federal and state
               laws and regulations and generally require an appraisal of the
               mortgaged property which conforms to Freddie Mac and/or Fannie
               Mae standards, and if appropriate, a review appraisal… Each
               Uniform Residential Appraisal Report includes a market data
               analysis based on recent sales of comparable homes in the area
               and, where deemed appropriate, replacement cost analysis based
               on the current cost of constructing a similar home

J.P. Morgan Acquisition Trust 2006-HE3 Prospectus Supplement at S-53—S-54.



                                               108
       310.       The statements in the Offering Documents regarding ResMAE’s underwriting

standards were materially false and misleading because ResMAE systematically disregarded its

stated underwriting standards and regularly made exceptions to its underwriting guidelines in the

absence of sufficient compensating factors, and with no concern as to the borrower’s ability to

repay the loan.

       311.       Former ResMae personnel interviewed in connection with a separate lawsuit,

confirm that employees were to disregard underwriting standards in order to generate more

loans. See Plumbers’ & Pipefitters’ Local #562 Supplemental Plan & Trust et al. v. J.P. Morgan

Acceptance Corp. I et al., 2:08-cv-01713-ERK-WDW (E.D.N.Y. filed March 26, 2008). A

former credit manager at ResMAE from 2004 through 2005, stated that exceptions to ResMAE’s

underwriting guidelines accounted for “50 percent” of all underwritten loans. A former Senior

Vice President of ResMAE from 2003 through 2006 confirmed that “exceptions were not

uncommon, there were [a] significant [amount of] exceptions…as much as 50%.” Exceptions

depended on “the quality of the individual doing [the loan], everybody was incentivized by

commissions to [generate a high loan] volume.

       312.       According to the former credit manager at ResMAE, the sales department

“push[ed]…through” stated income loans that listed incomes that were obviously false.

“[T]hat’s where things got ridiculous, because as underwriters you were told that things have to

make sense, you can’t have somebody that is a waitress that is making $5,000 a month and we

would say we want to go ‘full documentation’ and sales would say ‘no’ and push it through.”

       313.       A former regional credit manager at ResMAE from March 2004 through March

2007 also noticed problems with stated income loans and appraisals, especially in 2005 and

2006. She saw “fraud from appraisers, title companies, and…borrowers. Yeah, they were




                                                109
altering documents and that kind of stuff; that was very big in 2005 and 2006. Especially the

stated income, they would state that they made this income and they didn’t, it was [a]

misrepresentation.” During the last six months of her employment at ResMAE, she saw a large

percentage of exceptions as a result of “an effort to increase [loan] production.”

       314.    In addition, the former ResMae credit manager noted that she witnessed a lot of

borrowers that would list the property as “owner occupied” on their loan applications when in

fact the property was not. In those situations, underwriters were told not to “dig [too] deep”

when they suspected that the buyer had made a misrepresentation. There were even several

instances where the property “didn’t even exists, it was like a vacant lot, but yet we had an

address and pictures, but when the review appraiser went out there was no property.”

       315.    ResMAE’s reckless origination practices and disregard for appropriate

underwriting procedures led to devastating downgrades of the Certificates for which ResMAE

acted as an originator.

               13.        Wells Fargo Bank, N.A.

       316.    Wells Fargo originated mortgage loans that were included in Issuing Trusts from

which Plaintiff purchased Certificates, including Bear Stearns ALT-A Trust 2004-6 and Bear

Stearns Asset Backed Securities Trust 2007-2. Wells Fargo originated both prime and subprime,

high-cost residential mortgage loans and was one of the nation’s largest and most successful

mortgage finance companies until the subprime mortgage industry collapsed.

       317.    Beginning in 2005, Wells Fargo began abandoning its previously stable lending

habits in favor of more profitable “discretionary underwriting,” whereby the company

encouraged its employees to undertake more aggressive lending practices. Between 2005 and

2007, Wells Fargo vigorously loosened its underwriting standards and engaged in the systematic

practices of steering borrowers with poor credit into mortgages with fraudulently inflated


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property values, introducing borrowers to high-risk mortgage products, such as adjustable-rate,

interest-only loans and “stated income” loans, and utilizing a compensation structure that

rewarded employees for placing borrowers into high-cost mortgages. By the end of 2008, Wells

Fargo’s corrupt lending practices forced the company to take significant write-downs as a result

of its massive subprime market exposure and, in October 2008, the company received a $25

billion subsidy from the federal government as part of the Federal Emergency Economic

Stabilization Act. In 2010, Wells Fargo was identified by the Office of the Comptroller of the

Currency as the thirteenth worst subprime lender in the country.

       318.    As a result, Wells Fargo became the target of several lawsuits and government

investigations relating to its lending practices. As reported by an August 18, 2008 article in the

WASHINGTON BUSINESS JOURNAL, “Woman Sues Over Subprime Loan, Wins,” one borrower

filed a complaint against Wells Fargo in Montgomery County Circuit Court in Maryland after

being locked into a subprime loan that she could not afford and subsequently defaulted. The

borrower was awarded $1.25 million in damages after a jury convicted Wells Fargo of fraud,

negligence and other charges as a result of the company’s practice of intentionally inflating the

plaintiff’s income and assets in her mortgage application.

       319.    On March 27, 2009, a securities class action was filed against Wells Fargo and

others in the Northern District of California, alleging that the company violated the Securities

Act by engaging in a systematic practice of ignoring stated underwriting guidelines in favor of

increased loan generation. General Retirement Sys. of the City of Detroit v. The Wells Fargo

Mortgage Backed Secs. Trust 2006-AR18 Trust, et al., No. 5:09-cv-1376-LHK (N.D. Cal. filed

Mar. 27, 2009). Specifically, the plaintiffs alleged that Wells Fargo engaged in substandard

lending practices, such as providing loans to borrowers with poor credit, allowing stated income




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loans and no documentation loans to be offered to unqualified borrowers, and originating loans

based on fraudulently inflated appraisal values resulting in investment ratings that were

inherently flawed.

       320.       Witnesses have described Wells Fargo’s practice of placing “intense pressure” on

loan officers to close loans using fraudulent and deceptive means. Loan officers were instructed

to coerce borrowers into submitting inflated income statements and would use that information

to qualify loans without conducting any investigation into the borrower, and would ignore

situations where the information provided was false or blatantly implausible. The complaint also

alleged that the appraisals acquired for the properties underlying the loans were fraudulently

inflated in order to hide the fact that the value of the mortgages often exceeded the true value of

the properties.

                  14.    WMC Mortgage Corp.

       321.       WMC Mortgage originated mortgage loans that were included in Issuing Trusts

from which Plaintiff purchased Certificates, including J.P. Morgan Mortgage Acquisition Trust

2006-WMC4 and Washington Mutual Asset-Backed Certificates WMABS Series 2007-HE2

Trust. WMC, founded in 1955, was formerly known as the Weyerhaeuser Mortgage Company.

The company was acquired by General Electric Co. (“GE”) in 2004, when WMC was the sixth-

largest subprime lender in the nation.

       322.       WMC’s apparent success was marked by its reputation in the industry for

engaging in risky lending practices, originating subprime loans that were extended to less-than-

creditworthy borrowers and departing from sound underwriting guidelines. In March 2007,

REUTERS described WMC as “responsible for some of the worst-performing loans…[in] the $575

billion market for home equity asset-backed securities.” It also reported that WMC often did not

require borrowers to prove their ability to repay loans, extended 100% loan-to-value mortgages


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to undeserving borrowers and would permit “piggyback” second mortgages that stripped

borrowers of equity.

       323.    WMC has been involved in numerous lawsuits stemming from its fraudulent

lending practices. For example, in December 2007, PMI Mortgage Insurance Company (“PMI”)

and PMI Guaranty Co. (“PGC”), affiliated insurance companies, filed suit against WMC and GE

in the Superior Court of California, Los Angeles County, seeking to force WMC to buy back or

replace more than 120 mortgage loans that the firm was hired to insure and that it claimed were

fraudulently made or that were in violation of WMC’s stated underwriting guidelines. See PMI

Mortgage Ins. Co. v. WMB Mortgage Corp., No. BC381972 (Cal. Super. Ct. filed Dec. 2007).

The complaint alleged that WMC breached representations and warranties made in the sale

agreement by providing loans lacking proper documentation, particularly with respect to

borrowers’ employment and income information. A review of loans found “a systemic failure by

WMC to apply sound underwriting standards and practices.”

       324.    WMC has also been bombarded with a flurry of consumer lawsuits alleging TILA

and other violations. For example, in February 2009, a consumer filed a TILA lawsuit in the

United States District Court for the Eastern District of California seeking to rescind her mortgage

for GMC’s failure to adequately disclose material information about the loan, including the

actual interest rates, loan amount, and finance charges. See Parreira v. WMC Mortgage, LLC,

No. 1:09-cv-00229 (E.D. Cal. filed Feb. 4, 2009).         WMC was similarly targeted by the

Washington State Department of Financial Institutions, Division of Consumer Services

(“Department”) in June 2008, when the Department filed a Statement of Charges and Notice of

Intention to Enter an Order to Revoke License against WMC for inadequate disclosures given to

borrowers and failure to comply with provisions of the Consumer Loan Act. See In re WMC




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Mortgage Corp., No. C-07-557-08-SC01 (Wash. Dept. Fin. Institutions, Div. Consumer

Services, filed June 2008).

        325.    WMC announced in April 2007 that it would be initiating layoffs and, due to a

rise in delinquencies affecting the entire subprime market, stated that it would no longer be

writing loans to borrowers with credit scores below 600 or who could not make a down payment.

GE later reported that it would be setting aside $330 million in the first quarter of 2007 for loan-

loss reserves and expected a $50 million second-quarter loss as a consequence of WMC’s

subprime lending scheme. By December 2007, GE had shut down WMC altogether, taking a $1

billion loss.

V.      DEFENDANTS SYSTEMATICALLY MISREPRESENTED THAT APPRAISALS
        FOR THE SECURITIZED MORTGAGES WERE CONDUCTED IN
        ACCORDANCE WITH INDUSTRY STANDARDS

        326.    As stated above, with the emergence of the RMBS market, mortgage lenders,

including the Originators found that they could reap the benefits of unrestrained lending while

offloading the risks onto investors such as ABP. As a result, the Originators had little to no

financial interest in whether the mortgaged properties would provide sufficient collateral in case

of default, as long as they were able to sell their mortgage loans into securitizations.

        327.    The Originators responded to these perverse incentives in part by disregarding

USPAP uniform appraisal standards and systematically inflating appraisal values, in many

instances lending more than the mortgaged properties were really worth.

        328.    Some appraisers were openly instructed to alter their valuations for the benefit of

the mortgage lenders. On June 26, 2007, Alan Hummel, the chair of the Appraisal Institute’s

Government Relations Committee, testified before the House Committee on Financial Services

on “Legislative Proposals on Reforming Mortgage Practices” as follows: “Unfortunately, these

parties with a vested interest in the transaction are often the same people managing the appraisal


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process within many financial institutions, and therein is a terrible conflict of interest... [I]t is

common for a client to ask an appraiser to remove details about the material condition of the

property to avoid problems in the underwriting process.” A 2007 study conducted by the

October Research Corporation reported that 90% of appraisers had been pressured to raise

property valuations so that deals could go through, and that 75% of appraisers reported “negative

ramifications” if they did not alter their appraisals accordingly.

       329.    According to one witness, a former Senior Processor, Junior Underwriter, and

Compliance Controller who worked at Chase between December 2002 and October 2007,

underwriters at JPMorgan Bank and Chase received bonuses “not based on the length of the loan

or the delinquency rate. The bonus was based just on putting through the loan.” In order to have

these loans approved and bonuses increased these employees would pressure appraisers to

appraise properties at artificially high levels or they would not be hired again, resulting in

appraisals being done on a “drive-by” basis where appraisers issued their appraisals without

reasonable bases for doing so. This former employee regularly saw managers at Chase “brow

beating” appraisers to get their prices up.

       330.    According to a former loan officer for Chase, through at least 2004 and

potentially later, loan officers would state the actual the target price on the appraisal request in

order for the mortgage to be approved. If the desired price was not obtained, the loan officers

would call the appraiser again and “see what they could do to get the price changed and get the

loan approved.” It was in the appraiser’s interest to obtain the desired value in order to continue

to work with Chase. Additionally, the loan officer stated that Chase changed the policy around

2005, so loan officers could only select appraisal firms from an approved list which Chase

provided.




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       331.    Even absent explicit coercion or collusion, mortgage originators could inflate

apparent home values simply by offering work only to compliant appraisers. According to the

April 7, 2010 testimony of Richard Bitner (“Bitner”), a former executive of a subprime mortgage

originator, before the FCIC, “[B]rokers didn’t need to exert direct influence. Instead they picked

another appraiser until someone consistently delivered the results they needed.”

       332.    Widespread and systematic overvaluations by mortgage originators set into

motion a snowball effect that inflated housing prices all across the country and further distorted

the RMBS market. As Bitner testified, “If multiple properties in an area are overvalued by 10%,

they become comparable sales for future appraisals. The process then repeats itself. We saw it

on several occasions. We’d close a loan in January and see the subject property show up as a

comparable sale in the same neighborhood six months later. Except this time, the new subject

property, which was nearly identical in size and style to the home we financed in January, was

being appraised for 10% more… In the end, the subprime industry’s willingness to consistently

accept overvalued appraisals significantly contributed to the run-up in property values

experienced throughout the country.”

       333.    Reflecting the importance of independent and accurate real estate appraisals to

investors such as ABP, the Offering Documents contained extensive disclosures concerning the

value of the collateral underlying the mortgages pooled in the Issuing Trusts, and the appraisal

methods by which such values were obtained. Each Prospectus Supplement also reported the

average LTV ratios of the mortgage loans pooled in the Issuing Trusts.

       334.    Because investors such as ABP would not have invested in the Certificates had it

known of Originators’ abandonment of prudent appraisal methods, Defendants falsely claimed in

the Offering Documents that the mortgaged properties securing the Certificates had been




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appraised by qualified independent appraisers in conformance with USPAP. Defendants further

claimed in the Offering Documents that their appraisal values were based on market data

analyses of recent sales of comparable properties.

       335.    Defendants’ claims regarding LTV ratios were also false and misleading. Due to

the Originators’ systematic abuse of the appraisal process and disregard for USPAP appraisal

standards, the reported value of the properties securing the mortgage loans was substantially

overstated. This distorted the loan-to-value ratio, making the Certificates appear to be safer

investments than they actually were.

       336.    As discussed in Section III supra, the LTV ratio is one of the most important

measures of the riskiness of a loan. In the Offering Documents, Defendants acknowledge that

loans with high LTV ratios are more likely to default. For example, the Prospectus Supplement

(Form 4245B) for J.P. Morgan MAT 2006-WMC4, filed on December 20, 2006, states that,

“[m]ortgage loans with high loan-to-value ratios may present a greater risk of loss than mortgage

loans with lower loan-to-value ratios.” Furthermore, if a borrower does default and the property

enters foreclosure, the Issuing Trust is much more likely to recover the outstanding balance on

the loan through a foreclosure sale if the LTV ratio is low.

       337.    Mortgage loans that are “underwater” – that is to say, those where the LTV ratio

is greater than 100% because the value of the outstanding loan exceeds the value of the collateral

– are extremely risky investments. In these cases, the borrower has a strong incentive to default,

the possibility that the borrower will be capable of refinancing are virtually nil, and if the

mortgage enters foreclosure the Issuing Trust will definitely incur a loss.

       338.    Appraisals that do not conform to USPAP standards can artificially lower LTV

ratios by overstating the value of the mortgaged properties. In instances where LTV values have




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been distorted by faulty appraisals, RMBS investors are unaware of the true value of their

collateral until default and foreclosure occur.      The FCIC Final Report of the National

Commission on the Causes of the Financial and Economic Crisis in the United States discussed

this problem.

                As the housing market expanded, another problem emerged, in
                subprime and prime mortgages alike: inflated appraisals. For the
                lender, inflated appraisals meant greater losses if a borrower
                defaulted. But for the borrower or for the broker or loan officer
                who hired the appraiser, an inflated value could make the
                difference between closing and losing the deal. Imagine a home
                selling for $200,000 that an appraiser says is actually worth only
                $175,000. In this case, a bank won’t lend a borrower, say,
                $180,000 to buy the home. The deal dies. Sure enough, appraisers
                began feeling pressure. One 2003 survey found that 55% of
                appraisers had felt pressed to inflate the value of homes; by 2006,
                this had climbed to 90%.

       339.     Defendants had a responsibility to ensure that the LTV figures they presented in

the Offering Documents were not the product of fraudulent appraisals. As the PSI stated in its

staff report, ‘Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,’ “Whether

appraisals are conducted internally by the bank or through a vendor, the bank must take

responsibility for establishing a standard process to ensure accurate, unbiased home appraisal

values.”

       340.     Mass Mutual and the FHFA’s reviews of the loans underlying 34 JP Morgan-

issued RMBS, 44 Bear Stearns-issued RMBS, 27 WaMu-issued RMBS, and 16 Long Beach-

issued RMBS – which included loans from the same series and time period as offerings in which

ABP invested – revealed that, in addition to consistently misrepresenting owner-occupancy rates,

as discussed more fully below, Defendants also consistently misrepresented the LTV ratios of the

underlying mortgages and the number of properties with high LTV ratios. For each loan they

examined, Mass Mutual and the FHFA used an industry standard automated valuation model



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(“AVM”) to calculate the value of the mortgaged property at the time of origination. AVMs are

commonly used in the real estate industry and rely upon similar data as appraisers, including

county records, tax records, and data on comparable properties.

       341.   FHFA’s review of 31 JPMorgan RMBS, revealed that in each case, the Offering

Documents overstated the percentage of loans with low LTV ratios (defined as LTV ratios less

than 80%) by between 14.24% and 44.79%.               The Offering Documents understated the

percentage of underwater loans (loans with LTV ratios greater than 100%) by between 5.81%

and 23.87%.

       342.   FHFA’s review of 31 Bear Stearns RMBS revealed that in each case, the Offering

Documents overstated the percentage of loans with low LTV ratios (i.e., less than 80%) by

between .05% and 55.02%. The Offering Documents understated the percentage of underwater

loans by between 5.89% and 60.70%. Only two of the RMBS examined did not misrepresent the

percentage of loans with high LTV ratios.

       343.   FHFA’s review of 22 WaMu RMBS revealed that in each case, the offering

documents overstated the percentage of loans with low LTV ratios (i.e., less than 80%) by

between 6.48% and 42.23%. The offering documents understated the percentage of underwater

loans by between 3.72% and 26.24%. Only three of the RMBS examined did not misrepresent

the percentage of loans with high LTV ratios.

       344.   FHFA’s review of 16 Long Beach RMBS revealed that in each case, the offering

documents overstated the percentage of loans with low LTV ratios (defined as LTV ratios less

than 80%) by between 22.77% and 43.87%. The offering documents understated the percentage

of underwater loans (loans with LTV ratios greater than 100%) by between 6.45% and 21.35%.




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Only four of the RMBS examined did not misrepresent the percentage of loans with high LTV

ratios.

          345.   Although Mass Mutual presented its data differently than the FHFA did, its

review also revealed significant misrepresentations of LTV data. Mass Mutual found that for all

four of the JPMorgan RMBS it analyzed, the offering documents had understated the weighted

average LTV ratio by between 6.09 and 10.41% and understated the percentage of loans with

high LTV ratios (defined as LTV ratios greater than 90%) by between 11.7 % and 24.78%.

Likewise, for each of the 13 Bear Stearns RMBS that Mass Mutual reviewed, the offering

documents had understated the weighted average LTV ratio by between 8.97% and 15.04% and

understated the percentage of loans with high LTV ratios (i.e., greater than 90%) by between

7.68% and 32.99%. Finally, for each of the five WaMu RMBS that Mass Mutual reviewed, the

offering documents had understated the weighted average LTV ratio by between 9.76% and

14.57% and understated the percentage of loans with high LTV ratios (i.e., greater than 90% ) by

between 16.2 and 30.38%.

          346.   On information and belief, the mortgage loans underlying all of the Certificates

purchased by Plaintiff – which included loans from the same series and time period as offerings

in which ABP invested – suffer from similar deficiencies as the mortgage loans underlying the

Certificates purchased by Mass Mutual and Freddie Mac. The loan-level analyses demonstrate

that Defendants have engaged in a systematic practice of understating LTV ratios and the

number of underwater properties.

VI.       A SIGNIFICANT NUMBER OF THE MORTGAGE LOANS WERE MADE TO
          BORROWERS WHO DID NOT OCCUPY THE PROPERTIES IN QUESTION

          347.   The Offering Documents contained information regarding the purported

occupancy status of the mortgaged properties, including whether they were primary homes,



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investment property, or second homes. These representations were material to investors such as

Plaintiff because loans for owner-occupied properties are much less likely to default than loans

for second homes or investment properties. Owner-occupancy rates are an important metric for

judging the safety of a mortgage pool.

       348.    Allstate, the FHFA, and Mass Mutual each conducted loan-level analyses of

JPMorgan related RMBS that they had purchased. These forensic analyses covered thousands of

individual mortgage loans.    To determine whether a given borrower actually occupied the

property, Allstate, the FHFA, and Mass Mutual investigated tax information for the sampled

loans. Additionally, credit records, property records and lien records were reviewed in an effort

to determine whether the borrowers were in fact residing at the mortgaged property.

       349.   Allstate found that for each of the six JPMorgan RMBS that it reviewed, the

Offering Documents had overstated the percentage of borrowers who occupied the mortgaged

properties by between 8.7% and 13.8%. Likewise, for each of the six Bear Stearns RMBS that

Allstate reviewed, the Offering Documents had overstated the percentage of borrowers who

occupied the mortgaged properties by between 7.44% and 11.96%. For each of the five WaMu

RMBS that Allstate reviewed, the Offering Documents had overstated the percentage of

borrowers who occupied the mortgaged properties by between 14% and 16.8%.

       350.   The FHFA’s analysis revealed that for the 31 JPMorgan RMBS that it reviewed,

the Offering Documents had overstated the percentage of borrowers who occupied the

mortgaged properties by an average of 11.14%. Likewise, for each of the 31 Bear Stearns

RMBS that the FHFA reviewed, the Offering Documents had overstated the percentage of

borrowers who occupied the mortgaged properties by an average of 9.77%. For each of the 22

WaMu RMBS that the FHFA reviewed, the Offering Documents had overstated the percentage




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of borrowers who occupied the mortgaged properties by an average of 11.95%. Finally, for each

of the 16 Long Beach RMBS reviewed by the FHFA, the Offering Documents had overstated the

percentage of borrowers occupying the mortgaged properties by an average of 10.22%.

       351.   Finally, Mass Mutual’s analysis found that for the four JPMorgan RMBS that it

reviewed, the Offering Documents had overstated the percentage of borrowers who occupied the

mortgaged properties by between 8.74% and 11.32%. Likewise, for each of the 13 Bear Stearns

RMBS that Mass Mutual reviewed, the Offering Documents had overstated the percentage of

borrowers who occupied the mortgaged properties by between 5.95% and 13.53%. For each of

the five WaMu RMBS that Mass Mutual reviewed, the Offering Documents had overstated the

percentage of borrowers who occupied the mortgaged properties by between 8.11% and 15.16%.

       352.   On information and belief, the mortgage loans underlying all of the Certificates

purchased by Plaintiff ABP – which included loans from the same series and time period as

offerings in which ABP invested – suffer from similar deficiencies as the mortgage loans

underlying the Certificates purchased by Allstate, Mass Mutual, and Fannie Mae/Freddie Mac.

Three separate analyses covering a total of 41 JPMorgan, 50 Bear Stearns, 32 WaMu, and 16

Long Beach RMBS offerings have uncovered material overstatements of the owner-occupancy

ratio in every single offering. There is no reason to believe that the systematic and pervasive

misrepresentation of owner-occupancy rates identified by Allstate, Mass Mutual, and the FHFA

were confined to the RMBS they examined.

VII.   DEFENDANTS’ “CREDIT ENHANCEMENTS” WERE INTENDED TO
       MANIPULATE CREDIT RATINGS RATHER THAN PROVIDE SECURITY

       353.   Defendants used a variety of credit enhancements.        The most common was

“subordination” in which the Defendants created a hierarchy of loss absorption among the

tranche securities. To create that hierarchy, Defendants placed the pool’s tranches in an order,



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with the lowest tranche required to absorb any losses first, before the next highest tranche.

Losses might occur, for example, if borrowers defaulted on their mortgages and stopped making

mortgage payments into the pool. Lower level tranches most at risk of having to absorb losses

typically received noninvestment grade ratings from the credit rating agencies, while the higher

level tranches that were supposed to be protected from loss typically received investment grade

ratings. One key task for both Defendants and the credit rating agencies was to calculate the

amount of subordination required to ensure that the higher tranches in a pool were protected

from loss and could be given AAA or other investment grade ratings.

       354.    A second common form of credit enhancement was “over-collateralization.” In

this credit enhancement, the Defendants ensured that the revenues expected to be produced by

the assets in a pool exceeded the revenues designated to be paid out to each of the tranches. That

excess amount provided a financial cushion for the pool and was used to create an “equity”

tranche, which was the first tranche in the pool to absorb losses if the expected payments into the

pool were reduced. This equity tranche was subordinate to all the other tranches in the pool and

did not receive any credit rating. The larger the excess, the larger the equity tranche, and the

larger the cushion created to absorb losses and protect the more senior tranches in the pool. In

some pools, the equity tranche was also designed to pay a relatively higher rate of return to the

party or parties who held that tranche due to its higher risk.

       355.    Still another common form of credit enhancement was the creation of “excess

spread,” which involved designating an amount of revenue to pay the pool's monthly expenses

and other liabilities, but ensuring that the amount was slightly more than what was likely needed

for that purpose. Any funds not actually spent on expenses would provide an additional financial

cushion to absorb losses, if necessary.




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       356.       Former ratings agency analysts and managers told the PSI that investment banks

pressured them to get their deals done quickly, increase the size of the tranches that received

AAA ratings and reduce the credit enhancements protecting the AAA tranches from loss. In an

October 2007 memorandum, Moody’s Chief Credit Officer Andrew Kimball wrote, “The real

problem is not that the market does underweights [sic] ratings quality but rather that in some

sectors, it actually penalizes quality by awarding rating mandates based on the lowest credit

enhancement needed for the highest rating.”

       357.       As set forth below, representations regarding the inclusion and scope of these

credit enhancements were made in all of the Offering Documents. These representations were

false and misleading because all of the purported “enhancements” depended on or derived from

inflated appraisals of the mortgaged properties, which caused the listed LTV ratios and levels of

credit enhancement to be untrue.

VIII. THE CREDIT RATINGS ASSIGNED TO THE CERTIFICATES MATERIALLY
      MISREPRESENTED THE CREDIT RISK OF THE CERTIFICATES

       358.       The AAA credit ratings of the Certificates were an important factor in Plaintiff’s

decision to purchase the Certificates. Because Plaintiff is a conservative institutional investor, it

purchased only investment grade Certificates, all of which were rated AAA.

       359.       Investment grade securities are understood by investors to be stable, secure and

safe. A rating of AAA denotes high credit quality, and is the same rating as those typically

assigned to bonds backed by the full faith and credit of the United States Government, such as

treasury bills.     Historically, before 2007, investments with AAA ratings had an expected

cumulative loss rate of less than 0.5 percent, with an annual loss rate of close to zero. According

to S&P, the default rate on all investment grade corporate bonds (including AA, A and BBB)




                                                 124
from 1981 to 2007, for example, averaged about .094% per year and was not higher than 0.41%

in any year.

       360.    The Defendants well understood (and banked on) the importance that purchasers

of mortgage-backed securities attached to credit ratings. In most cases, the purchasers were

institutional investors such as Plaintiff who did not have the knowledge, means, or wherewithal

to independently analyze the mortgage pools underlying any particular offering to verify for

themselves that the ratings were accurately determined.

       361.    Accordingly, Defendants featured the ratings prominently in the Offering

Documents and discussed at length the ratings assigned to the Certificates, and the bases for the

ratings. Each Prospectus Supplement stated that the issuance of each tranche of the Certificates

was conditioned on the assignment of particular, investment-grade ratings, and listed the ratings

in a chart. All the Certificates purchased by Plaintiff were AAA-rated securities when issued and

purchased.

       362.    Unbeknownst to Plaintiff, at all relevant times, Defendants knew that the ratings

were not reliable because those ratings were bought and paid for, and were supported by, flawed

information provided by Defendants to the rating agencies. In fact, Defendants manipulated the

rating agencies to obtain the desired ratings for the Certificates.

       363.    Specifically, the ratings of the Certificates were significantly compromised by the

misinformation provided by Defendants to the rating agencies.            Among other matters,

Defendants did not disclose to the rating agencies that the Originators had abandoned their

underwriting standards by, among other things, manipulating the assets, liabilities, income and

other important information concerning borrowers, using false metrics to qualify borrowers, and

aggressively using exceptions to qualify borrowers. Defendants did not disclose their knowledge




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that, in obtaining appraisals to value the underlying collateral, the Originators used inflated

appraisals that departed from industry approved standards.        Defendants did not otherwise

disclose their knowledge of the pervasive fraud that affected the mortgages underlying the

Certificates.

        364.    Apart from supplying incomplete and false information to the rating agencies,

Defendants also manipulated their relationships with the rating agencies in order to achieve the

desired ratings. The rating agencies received enormous revenues from the issuers who paid them

for rating their securities. Because the desired rating of a securitized product was the starting

point for any securities offering, the rating agencies were actively involved in helping

Defendants structure the products to achieve the requested rating. As a result, the rating agencies

essentially worked backwards, starting with Defendants’ target rating and then working toward a

structure that would yield the desired rating. Among other things, the rating agencies instructed

Defendants on how much “credit enhancement” to provide to each tranche of the Certificates, in

order to secure the desired ratings.

        365.    When the rating agencies did exercise independent judgment, Defendants were

quick to retaliate. For example, by October 2007, the rating agencies had become increasingly

concerned with rising mortgage default rates and as a result, S&P and Moody’s downgraded

certain RMBS issued by Bear Stearns. Defendant Marano responded with a furious attempt to

bully them into compliance, using fees as a club. According to a complaint filed by Ambac

Assurance Corp. against EMC, in an October 17, 2007, email, Marano instructed his staff to

suspend payment to the rating agencies, writing, “My intention is to contact my peer at each firm

as well as the investors who bought the deals. From there, we are going to demand a waiver of

fees. In the interim, do not pay a single fee to either rating agency. Hold every fee up.”




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Ambac Assurance Corp. v. EMC Mortgage, Corp., No. 08-9464 (S.D.N.Y. filed Jan. 20, 2011)

(emphasis added in complaint).

       366.    In this manner, Defendants were able to manipulate the rating agencies to achieve

the inflated ratings they desired. Through repeated communications with the rating agencies,

Defendants were effectively able to reverse engineer aspects of the ratings models and then

modify the structures of their offerings to improve the ratings without actually improving the

underlying credit quality.

       367.    In a 2008 Report entitled “Summary Report of Issues Identified in the

Commission Staff’s Examinations of Select Credit Rating Agencies”, the SEC confirms that the

issuers and the rating agencies worked together so that securities would receive the highest

ratings:

               Typically, if the analyst concludes that the capital structure of the
               RMBS does not support the desired ratings, this preliminary
               conclusion would be conveyed to the arranger. The arranger could
               accept that determination and have the trust issue the securities
               with the proposed capital structure and the lower rating or adjust
               the structure to provide the requisite credit enhancement for the
               senior tranche to get the desired highest rating. Generally,
               arrangers aim for the largest possible senior tranche, i.e., to provide
               the least amount of credit enhancement possible, since the senior
               tranche -- as the highest rated tranche -- pays the lowest coupon
               rate of the RMBS’ tranches and, therefore, costs the arranger the
               least to fund.

       368.    The rating process was further compromised by the practice of “rating shopping.”

Defendants did not pay for the credit rating agencies’ services until after the agencies submitted

a preliminary rating. Essentially, this practice created bidding wars in which the issuers would

hire the agency that was providing the highest rating for the lowest price. The credit rating

agencies were only paid if they delivered the desired investment grade ratings, and only in the




                                                127
event that the transaction closed with those ratings. “Ratings shopping” jeopardized both the

integrity and independence of the rating process.

        369.    As a result, the Certificates were not worthy of the investment grade ratings given

to them, as evidenced most clearly by the fact that many of the Certificates – all initially awarded

the highest possible ratings – have now been downgraded to junk, a vast number of the

underlying loans have been foreclosed upon, and the remaining underlying loans are suffering

from crippling deficiencies and face serious risks of default. The collective downgrade of the

Aaa rated Certificates indicates that the ratings set forth in the Offering Documents were false,

unreliable and inflated. As JPMorgan Chase CEO Jamie Dimon admitted, “[t]here was a large

failure of common sense” because “[v]ery complex securities shouldn’t have been rated as if

they were easy-to-value bonds.” Roger Lowenstein, “Triple-A Failure,” THE NEW YORK TIMES

(Apr. 27, 2008).

        370.    By including and endorsing the Aaa ratings contained in the Offering Documents,

Defendants falsely represented that they actually believed that the ratings were an accurate

reflection of the credit quality of the Certificates.

IX.     DEFENDANTS FAILED TO ENSURE THAT TITLE TO THE UNDERLYING
        MORTGAGE LOANS WAS EFFECTIVELY TRANSFERRED

        371.    A fundamental aspect of the mortgage securitization process is that the issuing

trust for each offering must obtain good title to the mortgage loans comprising the pool for that

offering. This is necessary in order for the holders of the RMBS to be legally entitled to enforce

the mortgage loans in the event of default. Two documents relating to each mortgage loan must

be validly transferred to the trust as part of the securitization process – a promissory note and a

security instrument (either a mortgage or a deed of trust).




                                                  128
       372.    The rules for these transfers are governed by the law of the state where the

property is located, by the terms of the pooling and servicing agreement (“PSA”) for each

securitization, and by the law governing the issuing trust (with respect to matters of trust law).

In general, state laws and the PSAs require the promissory note and security instrument to be

transferred by indorsement, in the same way that a check can be transferred by indorsement, or

by sale. In addition, state laws generally require that the trustee of the issuing trust have physical

possession of the original, manually signed promissory note in order for the loan to be

enforceable by the trustee against the borrower in the event of a default by the borrower.

       373.    In order to preserve the bankruptcy-remote status of the issuing trusts in RMBS

transactions, the notes and security instruments are generally not directly transferred from the

mortgage loan originator to the trust. Rather, the notes and security instruments are initially

transferred from the originator to the depositor, either directly or via one or more special-purpose

entities. After this initial transfer to the depositor, the depositor transfers the notes and security

interests to the issuing trust for the particular securitization. Each of these transfers must be

valid under applicable state law in order for the trust to have good title to the mortgage loans.

       374.    To ensure that the trust qualifies as a tax-free real estate mortgage investment

conduit, the PSA generally requires the transfers to the trust to be completed within a strict time

limit after formation of the trust. Furthermore, the applicable trust law in each state generally

requires strict compliance with the trust documents, including the PSA, so that failure to comply

strictly with the timeliness, indorsement, physical delivery and other requirements of the PSA

with respect to the transfers of the notes and security instruments means that the transfers would

be void and the trust would not have good title to the mortgage loans. Adam Levitin, a professor

of law at Georgetown University, testified before the United States House Subcommittee on




                                                 129
Housing and Community Opportunity, that, “If the notes and mortgages were not properly

transferred to the trusts, then the mortgage-backed securities that the investors purchased were in

fact non-mortgage backed securities.”

       375.    On November 18, 2010, Professor Levitin testified about the importance of the

chain of title to investors and the consequences of faulty transfers before a hearing of the House

Financial Services Committee:

               Concerns about securitization chain of title also go to the standing
               question; if the mortgages were not properly transferred in the
               securitization process (including through the use of MERS to
               record the mortgages), then the party bringing the foreclosure does
               not in fact own the mortgage and therefore lacks standing to
               foreclose. If the mortgage was not properly transferred, there are
               profound implications too for investors, as the mortgage-backed
               securities they believed they had purchased would, in fact be non-
               mortgage-backed securities, which would almost assuredly lead
               investors to demand that their investment contracts be rescinded[.]

                                         *      *       *

               Securitization is the legal apotheosis of form over substance, and if
               securitization is to work it must adhere to its proper, prescribed
               form punctiliously. The rules of the game with securitization, as
               with real property law and secured credit are, and always have
               been, that dotting “i’s” and crossing “t’s” matter, in part to ensure
               the fairness of the system and avoid confusions about conflicting
               claims to property. Close enough doesn’t do it in securitization; if
               you don’t do it right, you cannot ensure that securitized assets are
               bankruptcy remote and thus you cannot get the ratings and opinion
               letters necessary for securitization to work. Thus, it is important
               not to dismiss securitization problems as merely “technical;” these
               issues are no more technicalities than the borrower’s signature on a
               mortgage. Cutting corners may improve securitization’s economic
               efficiency, but it undermines its legal viability.

       376.    On October 27, 2010, Katherine Porter, then a visiting a professor at Harvard Law

School specializing in consumer credit, consumer protection regulation, and mortgage servicing,

provided similar testimony before the Congressional Oversight Panel:




                                               130
                The implications of problems with transfer are serious. If the
                [securitization] trust does not have the loan, homeowners may have
                been making payments to the wrong party. If the trust does not
                have the note or mortgage, it may not have standing to foreclose or
                legal authority to negotiate a loan modification. To the extent that
                these transfers are being completed retroactively, it raises issues
                about honesty in creating and dating the assignments/transfers and
                about what parties can do, if anything, if an entity in the
                securitization chain, such as Lehman Brothers or New Century, is
                no longer in existence. Moreover, retroactive transfers may violate
                the terms of the trust, which often prohibit the addition of new
                assets, or may cause the trust to lose its REMIC status, a favorable
                treatment under the Internal Revenue Code. Chain of title
                problems have the potential to expose the banks to investor
                lawsuits and to hinder their legal authority to foreclose or even to
                do loss mitigation.

                                         *       *      *

                I want to share with the Panel that the lawyers that I have met over
                years of my research on mortgage servicing both creditor lawyers
                and debtor lawyers have nearly universally expressed that they
                believe a very large number (perhaps virtually all) securitized
                loans made in the boom period in the mid-2000s contain serious
                paperwork flaws, did not meet underwriting or other requirements
                of the trust, and have not been serviced properly as to default and
                foreclosure.

        377.    It is now clear that Defendants did not transfer securitized loans to the Issuing

Trusts in a timely fashion, if they did so at all. According to a Federal Reserve press release,

these banking organizations engaged in “a pattern of misconduct and negligence related to

deficient practices in residential mortgage loan servicing and foreclosure processing. These

deficiencies represent significant and pervasive compliance failures and unsafe and unsound

practices at these institutions.”

        378.    The Offering Documents for the Certificates represented in substance that the

Issuing Trust for each respective offering had obtained good title to the mortgage loans

comprising the pool underlying the offering.          However, in actual fact, Originators and




                                                131
Defendants routinely and systematically failed to comply with the requirements of applicable

state laws and the PSAs for valid transfers of the notes and security instruments.

       379.    MERS, the electronic mortgage registry used by the banking industry a unit of

Merscorp Inc of Reston, Virginia, has faced multiple investigations for its role in thousands of

problematic U.S. foreclosure cases. MERS tracks servicing rights and ownership interests in

mortgage loans on its electronic registry, allowing banks to buy and sell loans without recording

transfers with individual counties.

       380.    Most recently, MERS has been the subject of a joint Delaware-New York probe.

The registry has been sued by the Delaware Attorney General, which accuses MERS of

deceptive practices that led to unlawful shortcuts in dealing with the foreclosure crisis. See State

of Del v. MERSCORP Inc., C.A. No. 6987 (Del. Ch. Oct. 27, 2011). The Delaware complaint

alleges that “MERS engaged and continues to engage in a range of deceptive trade practices that

sow confusion among consumers, investors and other stakeholders in the mortgage finance

system, damage the integrity of Delaware’s land records, and lead to unlawful foreclosure

practices.”

       381.    New York’s attorney general has also taken action against MERS, subpoenaing

the registry for information about how it is used by major banks, including JPMorgan Chase, and

a foreclosure law firm.

       382.    On September 29, 2010, JPMorgan announced that it was freezing foreclosure

proceedings in 23 states due to defects in its loan files and foreclosure documents. According to

an October 13, 2010 BLOOMBERG article, all 50 state attorneys general have launched a

coordinated investigation into whether banks including JPMorgan used false documents to

justify foreclosing on mortgages for which they did not possess legal title.




                                                132
X.     DEFENDANTS’ SPECIFIC MATERIAL MISSTATEMENTS AND OMISSIONS
       IN THE OFFERING DOCUMENTS

       383.   In light of the numerous departures from underwriting guidelines and appraisal

standards by the Originators described above, the Offering Documents (Registration Statements

and Prospectus Supplements) disseminated by Defendants in the course of selling the Certificates

contained numerous misstatements and omissions, as set forth below.

       A.     DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS REGARDING
              UNDERWRITING STANDARDS AND PRACTICES

       384.   Defendants    issued   Offering    Documents     that   contained   the    following

misrepresentations concerning the underwriting guidelines and practices of JPMorgan, Bear

Stearns, WaMu and Long Beach, using identical or substantially similar language:

              (a)     The underwriting standards of [the originator] are
                      primarily intended to assess the ability and willingness of
                      the borrower to repay the debt and to evaluate the
                      adequacy of the mortgaged property as collateral for the
                      mortgage loan. [The originator] considers, among other
                      things, a mortgagor’s credit history, repayment ability and
                      debt service-to-income ratio (referred to herein as the “Debt
                      Ratio”), as well as the value, type and use of the mortgaged
                      property.

The above misstatement was contained in the following Offering Documents:               Prospectus

Supplement for J.P. Morgan MAT 2006-RM1 (Form 424B5), at 49 (Sep. 21, 2006); Prospectus

Supplement for J.P. Morgan MAT 2006-HE3 (Form 424B5), at 53 (Oct. 27, 2006); Prospectus

Supplement for J.P. Morgan MAT 2006-WMC4 (Form 424B5), at 44 (Dec. 15, 2006);

Prospectus Supplement for J.P. Morgan MAT 2007-CH3 (Form 424B5), at 79 (May 3, 2007);

Prospectus Supplement for J.P. Morgan MAT 2007-CH4 (Form 424B5), at 80 of (Jun. 7, 2007);

Registration Statement (333-130192) filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am.

3), at 85 (Mar. 31, 2006); Registration Statement (333-141607) filed by JPMorgan Acceptance

Corp. I (Form S-3/A, Am. 1), at 102 (Apr. 23, 2007).


                                                133
              (b)    The underwriting of the mortgage loans generally consisted
                     of analyzing the following as standards applicable to the
                     mortgage loans: the creditworthiness of a borrower based
                     on both a credit score and mortgage history; the income
                     sufficiency of a borrower’s projected family income
                     relative to the mortgage payment and to other fixed
                     obligations, including in certain instances rental income
                     from investment property; and the adequacy of the
                     mortgaged property, expressed in terms of loan-to-value
                     ratio, to serve as the collateral for a mortgage loan.

The above misstatement was contained in the following Offering Documents:           Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE5 (Form 424B5), at 23 (May 29, 2007);

Prospectus Supplement for Bear Stearns ALT-A Trust 2004-6 (Form 424B5), at S-34 (Jun. 29,

2004); Prospectus Supplement for Bear Stearns ABS I Trust 2006-HE7 (Form 424B5), at 48

(Aug. 28, 2006); Prospectus Supplement for Bear Stearns ABS I Trust 2006-HE9 (Form 424B5),

at 34 (Nov. 29, 2006); Prospectus Supplement for Bear Stearns ABS Trust 2007-2 (Form

424B5), at S-39 (May 14, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-

HE1 (Form 424B5), at 39 (Jan. 29, 2007); Prospectus Supplement for Bear Stearns ABS I Trust

2007-HE2 (Form 424B5), at 38 (Feb. 27, 2007); Prospectus Supplement for Bear Stearns ABS I

Trust 2007-HE3 (Form 424B5), at 31 (Mar. 29, 2007); Prospectus Supplement for Bear Stearns

ABS I Trust 2007-HE4 (Form 424B5), at 27 (Apr. 26, 2007); Prospectus Supplement for SACO

I Trust 2005-5 (Form 424B5), at S-37 (Jul. 28, 2005); Registration Statement (333-115122) filed

by Structured Asset Mort. Investments II Inc. (Form S-3/A, Am. 1), at 14 (May 11, 2004);

Registration Statement (333-125422) filed by Bear Stearns ABS I LLC (Form S-3/A, Am. 1), at

90 (Jun. 14, 2005); Registration Statement (333-131374) filed by Bear Stearns ABS I LLC

(Form S-3/A, Am. 5), at S-42 (Mar. 31, 2006).

              (c)    All of the mortgage loans owned by the trust have been
                     originated generally in accordance with the underwriting
                     guidelines of the sponsor described in this section. The
                     sponsor’s underwriting guidelines are primarily intended


                                                134
                     to evaluate the prospective borrower’s credit standing and
                     repayment ability as well as the value and adequacy of the
                     mortgaged property as collateral.

The above misstatement was contained in the following Offering Documents:         Prospectus

Supplement for WMABS Series 2007-HE2 Trust (Form 424B5), at S-39 (Mar. 7, 2007);

Prospectus Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at S-24 (Dec. 26,

2006); Prospectus Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at S-25 (Jan.

26, 2007); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5), at S-26

(Jun. 25, 2007); Prospectus Supplement for WaMu Series 2007-HE1 Trust (Form 424B5), at S-

27 (Jan. 12, 2007); Prospectus Supplement for WaMu Series 2007-HE2 Trust (Form 424B5), at

S-29 (Apr. 5, 2007); Registration Statement (333-141255) filed by WaMu Asset Acceptance

Corp. (Form S-3/A, Am. 1), at S-30 (Apr. 9, 2007); Registration Statement (333-130795) filed

by WaMu Asset Acceptance Corp. (Form S-3/A, Am. 1), at S-28 (Jan. 3, 2006).

              (d)    All of the mortgage loans owned by the trust have been, or
                     will be, originated by the sponsor through wholesale
                     brokers or re-underwritten upon acquisition from
                     correspondents by the sponsor generally in accordance with
                     the Long Beach underwriting guidelines described in this
                     section. The Long Beach underwriting guidelines are
                     primarily intended to evaluate the prospective borrower’s
                     credit standing and repayment ability as well as the value
                     and adequacy of the mortgaged property as collateral.
                     The term “sponsor” as used in this “Underwriting of the
                     Mortgage Loans” section of this prospectus supplement
                     refers to Long Beach Mortgage Company for mortgage
                     loans owned by the trust that were originated or acquired
                     prior to July 1, 2006.

The above misstatement was contained in the following Offering Documents:         Prospectus

Supplement for Long Beach MLT 2006-6 (Form 424B5), at S-35 (Jul. 21, 2006); Prospectus

Supplement for Long Beach MLT 2006-9 (Form 424B5), at S-35 (Oct. 6, 2006); Prospectus

Supplement for Long Beach MLT 2006-10 (Form 424B5), at S-36 (Nov. 3, 2006); Prospectus



                                            135
Supplement for Long Beach MLT 2006-11 (Form 424B5), at S-36 (Dec. 11, 2006); Registration

Statement (333-131252) filed by Long Beach Sec. Corp. (Form S-3/A, Am. 1), at 26 (Mar. 21,

2006).

         385.   The above statements of material fact were untrue when made because they

represented that the Originators applied underwriting guidelines to assess the value of the

mortgaged properties, evaluate the adequacy of such properties as collateral for the mortgage

loans, and assess the applicants’ abilities to repay their mortgage loans, when in fact the

Originators had actually abandoned these standards so that they could increase the volume of

loan origination and the resulting fees that they earned. For further discussion of Originators’

disregard of their stated underwriting guidelines, see Section IV, supra.

         B.     DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS REGARDING
                QUALITY CONTROL PROCEDURES

         386.   The Offering Documents represented that numerous quality control procedures

were conducted with respect to the loans underlying the Certificates. For example, the Offering

Documents contained, in sum or substance, the following representations:

                (a)   Performing loans acquired by the sponsor are subject to
                      varying levels of due diligence prior to purchase.
                      Portfolios may be reviewed for credit, data integrity,
                      appraisal valuation, documentation, as well as compliance
                      with certain laws. Performing loans purchased will have
                      been originated pursuant to the sponsor’s underwriting
                      guidelines or the originator’s underwriting guidelines that
                      are acceptable to the sponsor.

The above misstatement was contained in the following Offering Documents:            Prospectus

Supplement for Bear Stearns ABS I Trust 2006-HE7 (Form 424B5), at 55 (Aug. 30, 2006);

Prospectus Supplement for Bear Stearns ABS I Trust 2006-HE9 (Form 424B5), at 38 (Dec. 1,

2006); Prospectus Supplement for Bear Stearns ABS Trust 2007-2 (Form 424B5), at S-62 (May

18, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE1 (Form 424B5), at 43-


                                               136
44 (Jan. 31, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE2 (Form

424B5), at 42 (Feb. 28, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE3

(Form 424B5), at 40 (Apr. 2, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-

HE4 (Form 424B5), at 29 (Apr. 27, 2007); Prospectus Supplement for Bear Stearns ABS I Trust

2007-HE5 (Form 424B5), at 25 (May 30, 2007).

              (b)    Quality Control Review

                     As part of its quality control system, the sponsor re-verifies
                     information that has been provided by the mortgage
                     brokerage company prior to funding a loan and the sponsor
                     conducts a post-funding audit of every origination file. In
                     addition, Washington Mutual Bank periodically audits
                     files based on a statistical sample of closed loans. In the
                     course of its pre-funding review, the sponsor re-verifies the
                     income of each prospective borrower or, for a self-
                     employed prospective borrower, reviews the income
                     documentation obtained under the full documentation and
                     limited documentation residential loan programs. The
                     sponsor generally requires evidence of funds to close on the
                     mortgage loan.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents:     Prospectus Supplement for WaMu Series 2007-HE2 Trust

(Form 424B5), at S-32 (Apr. 6, 2007);Prospectus Supplement for WaMu Series 2007-HE1 Trust

(Form 424B5), at S-29 (Jan. 16, 2007); Prospectus Supplement for WMABS Series 2007-HE2

Trust (Form 424B5), at S-41 (Mar. 9, 2007); Prospectus Supplement for WMALT Series 2006-

AR10 Trust (Form 424B5), at S-27 (Dec. 27, 2006); Prospectus Supplement for WMALT Series

2007-OC2 Trust (Form 424B5), at S-29 (Jun. 26, 2007); Prospectus Supplement for WMALT

Series 2007-HY1 Trust (Form 424B5), at S-28 (Jan. 29, 2007); Registration Statement (333-

141255) filed by WaMu Asset Acceptance Corp. (Form S-3/A, Am. 1), at S-32 (Apr. 9, 2007);

Registration Statement (333-130795) filed by WaMu Asset Acceptance Corp. (Form S-3/A, Am.

1), at S-30 (Jan. 3, 2006); Prospectus Supplement for Long Beach MLT 2006-6 (Form 424B5),


                                              137
at S-37 (Jul. 25, 2006); Prospectus Supplement for Long Beach MLT 2006-9 (Form 424B5), at

S-37 (Oct. 10, 2006); Prospectus Supplement for Long Beach MLT 2006-10 (Form 424B5), at S-

38 (Nov. 7, 2006); Prospectus Supplement for Long Beach MLT 2006-11 (Form 424B5), at S-38

(Dec. 13, 2006); Registration Statement (333-131252) filed by Long Beach Sec. Corp. (Form S-

3/A, Am. 1), at S-40 (Mar. 21, 2006).

       387.   WaMu and Long Beach also made the following misrepresentations:

              Strong Compliance Culture

                      Compliance reporting lines are independent of business
                      units

                      LBM compliance officers dedicated to loan fulfillment
                      centers

                      High cost calculations automated in the loan origination
                      system and prohibit approval of high cost loans

                      100% of loans are reviewed for, among other things,
                      compliance with key consumer regulations prior to
                      funding

                      100% of refinance loans must pass a net tangible benefits
                      test

                      Corporate Compliance Risk reviews a sample of closed
                      loans every month for compliance by loan fulfillment
                      center and the grades are part of the loan fulfillment
                      center’s Key Performance Indicators

The above misstatements were contained in the following Offering Documents: Free Writing

Prospectus filed by Long Beach Sec. Corp. (Form FWP), at 26 (Nov. 17, 2006); Free Writing

Prospectus filed by WaMu Asset Acceptance Corp. (Form FWP), at 29 (Jan. 26, 2007).

       388.   WaMu and Long Beach also made the following misrepresentations:

              Risk Management – Sellers

                 Seller due diligence focused on developing a long-term
                 profitable relationship



                                             138
                  –   Thorough review of business and lending practices,
                      underwriting philosophy and guidelines

                         •   Comparison to industry standards

                         •   Focus on prudent risk management of seller

The above misstatements, in identical or substantially similar language, were contained in the

following Offering Documents: Free Writing Prospectus filed by Long Beach Sec. Corp. (Form

FWP), at 29 (Nov. 17, 2006); Free Writing Prospectus filed by WaMu Asset Acceptance Corp.

(Form FWP), at 32 (Jan. 26, 2007); Free Writing Prospectus filed by WaMu Asset Acceptance

Corp. (Form FWP), at 22 (Jun. 8, 2007).

       389.   WaMu and Long Beach also made the following misrepresentations:

              Risk Management – Mortgages

                Extensive use of models drives performance expectations
                 – Models are constantly re-calibrated to incorporate recent
                     performance history
                Clearly established minimum standards
                 – Credit standards reviewed and approved by Washington
                     Mutual Credit Policy Committee
                 – Seller pools are filtered to so that loans meet minimum
                     standards prior to due diligence
                 – NO FICO < 500
                 – MAX LTV/CLTV 100
                 – NO High-risk property types: MH, 5+ units, condotels,
                     coops, time shares
                Significant level of loan level due diligence by third-party due
                diligence firms
                 – 100% complete re-underwrite on pools purchased from
                     new sellers
                 – 25% - 100% complete re-underwrite for repeat sellers
                 – 100% - validation of appraisal using third-party appraisal
                     valuation product
                 – 20% - 100% appraisals reviewed using appraiser drive-by
                     review
                 – 100% collateral file review by custodian
                 – 100% review for consumer compliance




                                             139
                    –  100% review for predatory practices: flipping, equity
                       stripping, fraud
                  Washington Mutual management reviews all due diligence
                  decisions by third-parties

The above misstatements, in identical or substantially similar language, were contained in the

following Offering Documents: Free Writing Prospectus filed by Long Beach Sec. Corp. (Form

FWP), at 30 (Nov. 17, 2006); Free Writing Prospectus filed by WaMu Asset Acceptance Corp.

(Form FWP), at 33 (Jan. 26, 2007); Free Writing Prospectus filed by WaMu Asset Acceptance

Corp. (Form FWP), at 22 (Jun. 8, 2007).

       390.   The above statements of material facts were untrue when made because they

failed to disclose that the Sponsors and Originators did not, in fact, apply quality control

measures to assess the value of the mortgaged properties, evaluate the adequacy of such

properties as collateral for the mortgage loans, or assess the applicants’ ability to repay their

mortgage loans.

       C.     DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS REGARDING
              UNDERWRITING EXCEPTIONS

       391.   Defendants      issued   Offering    Documents     that   contained   the   following

misrepresentations concerning the policy with respect to underwriting exceptions:

              (a)       All of the mortgage loans were underwritten by [the
                        originator’s] underwriters having the appropriate signature
                        authority. Each underwriter is granted a level of authority
                        commensurate with their proven judgment, maturity and
                        credit skills. On a case by case basis, [the originator] may
                        determine that, based upon compensating factors, a
                        prospective mortgagor not strictly qualifying under the
                        underwriting risk category guidelines described below
                        warrants an underwriting exception.            Compensating
                        factors may include, but are not limited to, low loan-to-
                        value ratio, low Debt Ratio, substantial liquid assets, good
                        credit history, stable employment and time in residence at
                        the applicant’s current address. A substantial portion of the
                        Mortgage Loans represent such underwriting exceptions.



                                                  140
The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2006-RM1 (Form

424B5), at 50 (Sep. 21, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-HE3 (Form

424B5), at 53 (Oct. 27, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-WMC4

(Form 424B5), at 44 (Dec. 15, 2006); Prospectus Supplement for J.P. Morgan MAT 2007-CH3

(Form 424B5), at 79 (May 3, 2007); Prospectus Supplement for J.P. Morgan MAT 2007-CH4

(Form 424B5), at 80 (Jun. 7, 2007); Registration Statement (333-130192) filed by JPMorgan

Acceptance Corp. I (Form S-3/A, Am. 3), at 85 (Mar. 31, 2006); Registration Statement (333-

141607) filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am. 1), at 102 (Apr. 23, 2007).

              (b)    Exceptions. As described above, the indicated underwriting
                     standards applicable to the mortgage loans to be included in
                     each trust include the foregoing categories and
                     characteristics as guidelines only. On a case-by-case basis,
                     it may be determined that an applicant warrants a debt
                     service-to-income ratio exception, a pricing exception, a
                     loan-to-value ratio exception, an exception from certain
                     requirements of a particular risk category, etc. An
                     exception may be allowed if the application reflects
                     compensating factors, such as: low loan-to-value ratio;
                     stable ownership; low debt ratios; strong residual income; a
                     maximum of one 30-day late payment on all mortgage
                     loans during the last 12 months; and stable employment or
                     ownership of current residence of four or more years.
                     Based on the indicated underwriting standards applicable
                     for mortgage loans with risk features originated thereunder,
                     those mortgage loans are likely to experience greater rates
                     of delinquency, foreclosure and loss, and may experience
                     substantially greater rates of delinquency, foreclosure and
                     loss than mortgage loans underwritten under more stringent
                     underwriting standards.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE5

(Form 424B5), at 25 (May 29, 2007); Prospectus Supplement for Bear Stearns ALT-A Trust

2004-6 (Form 424B5), at S-34 (Jun. 29, 2004); Prospectus Supplement for Bear Stearns ABS I


                                             141
Trust 2006-HE7 (Form 424B5), at 49 (Aug. 28, 2006); Prospectus Supplement for Bear Stearns

ABS I Trust 2006-HE9 (Form 424B5), at 34 (Nov. 29, 2006); Prospectus Supplement for Bear

Stearns ABS Trust 2007-2 (Form 424B5), at S-41 (May 14, 2007); Prospectus Supplement for

Bear Stearns ABS I Trust 2007-HE1 (Form 424B5), at 39 (Jan. 29, 2007); Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE2 (Form 424B5), at 38 (Feb. 27, 2007);

Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE3 (Form 424B5), at 31 (Mar. 29,

2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE4 (Form 424B5), at 27

(Apr. 26, 2007); Prospectus Supplement for SACO I Trust 2005-5 (Form 424B5), at S-37 (Jul.

28, 2005); Registration Statement (333-125422) filed by Bear Stearns ABS I LLC (Form S-3/A,

Am. 1), at 91 (Jun. 14, 2005); Registration Statement (333-131374) filed by Bear Stearns ABS I

LLC (Form S-3/A, Am. 5), at S-42 (Mar. 31, 2006).

              (c)    Exceptions to the underwriting standards described above
                     may be made on a case-by-case basis if compensating
                     factors are present. In those cases, the basis for the
                     exception is documented. Compensating factors may
                     include, but are not limited to, low loan-to-value ratio, low
                     debt-to-income ratio, good credit standing, the availability
                     of other liquid assets, stable employment and time in
                     residence at the prospective borrower’s current address.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for WMALT Series 2007-OC2 Trust

(Form 424B5), at S-29 (Jun. 25, 2007); Prospectus Supplement for WMABS Series 2007-HE2

Trust (Form 424B5), at S-43 (Mar. 7, 2007); Prospectus Supplement for WMALT Series 2006-

AR10 Trust (Form 424B5), at S-26 (Dec. 26, 2006); Prospectus Supplement for WMALT Series

2007-HY1 Trust (Form 424B5), at S-27 (Jan. 26, 2007); Prospectus Supplement for WaMu

Series 2007-HE1 Trust (Form 424B5), at S-29 (Jan. 12, 2007); Prospectus Supplement for

WaMu Series 2007-HE2 Trust (Form 424B5), at S-31 (Apr. 5, 2007); Registration Statement



                                             142
(333-141255) filed by WaMu Asset Acceptance Corp. (Form S-3/A, Am. 1), at S-32 (Apr. 9,

2007); Registration Statement (333-130795) filed by WaMu Asset Acceptance Corp. (Form S-

3/A, Am. 1), at S-30 (Jan. 3, 2006).

               (d)    On a case-by-case basis and only with the approval of an
                      employee with appropriate risk level authority, the
                      sponsor may determine that, based upon compensating
                      factors, a prospective borrower not strictly qualifying
                      under the Long Beach underwriting risk category
                      guidelines warrants an underwriting exception.
                      Compensating factors may include, but are not limited to,
                      low loan-to-value ratio, low debt-to-income ratio, good
                      credit history, stable employment and time in residence at
                      the prospective borrower’s current address. It is expected
                      that some of the mortgage loans owned by the trust will be
                      underwriting exceptions.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Long Beach MLT 2006-6 (Form

424B5), at S-36-37 (Jul. 21, 2006); Prospectus Supplement for Long Beach MLT 2006-9 (Form

424B5), at S-36-37 (Oct. 6, 2006); Prospectus Supplement for Long Beach MLT 2006-10 (Form

424B5), at S-37-38 (Nov. 3, 2006); Prospectus Supplement for Long Beach MLT 2006-11 (Form

424B5), at S-37-38 (Dec. 11, 2006); Registration Statement (333-131252) filed by Long Beach

Sec. Corp. (Form S-3/A, Am. 1), at S-39 (Mar. 21, 2006).

       392.    The above statements of material facts were untrue when made because they

failed to disclose that, in order to generate increased loan volume for securitizations, and in

contravention of Defendants’ and the third party originators’ underwriting guidelines,

Defendants and the third party originators allowed non-qualifying borrowers to be approved for

loans under “exceptions” to their underwriting standards, even though there were no

“compensating factors” that could possibly justify such an exception.




                                              143
       D.     DEFENDANTS MADE UNTRUE STATEMENTS AND OMISSIONS REGARDING LOAN-
              TO-VALUE RATIOS AND APPRAISALS

       393.   The Offering Documents represented that independent appraisals were prepared

for each mortgaged property and that reports were prepared to substantiate these appraisals. For

example, the Offering Documents contained, in sum or substance, the following representations:




The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2007-CH4 (Form

424B5), at 36 (Jun. 15, 2007); Prospectus Supplement for J.P. Morgan MAT 2006-HE3 (Form

424B5), at 27 (Nov. 13, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-RM1 (Form

424B5), at 27 (Sep. 28, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-WMC4

(Form 424B5), at 22-23 (Dec. 20, 2006); Prospectus Supplement for J.P. Morgan MAT 2007-

CH3 (Form 424B5), at 35 (May 11, 2007).




                                              144
The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Bear Stearns ALT-A Trust 2004-6

(Form 424B5), at A-25 (Ju1. 1, 2004); Prospectus Supplement for SACO I Trust 2005-5 (Form

424B5), at A-2 (Aug. 19, 2005); Prospectus Supplement for Bear Stearns ABS I Trust 2006-HE7

(Form 424B5), at 165 (Aug. 30, 2006); Prospectus Supplement for Bear Stearns ABS I Trust

2006-HE9 (Form 424B5), at 142 (Dec. 1, 2006); Prospectus Supplement for Bear Stearns ABS I

Trust 2007-HE1 (Form 424B5), at 150] (Jan. 31, 2007); Prospectus Supplement for Bear Stearns

ABS I Trust 2007-HE2 (Form 424B5), at 153 (Feb. 28, 2007); Prospectus Supplement for Bear

Stearns ABS I Trust 2007-HE3 (Form 424B5), at 105-106 (Apr. 2, 2007); Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE4 (Form 424B5), at 88-89 (Apr. 27, 2007);

Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE5 (Form 424B5), at 71 (May 30,

2007).

              (a)    The loan-to-value ratio for each mortgage loan was no
                     greater than 100% at the time of origination….



                                            145
The above misstatement was contained in the following Offering Documents:              Prospectus

Supplement for WMABS Series 2007-HE2 Trust (Form 424B5), at S-67 (Mar. 9, 2007);

Prospectus Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at S-90 (Dec. 27,

2006); Prospectus Supplement for WaMu Series 2007-HE1 Trust (Form 424B5), at S-55 (Jan.

16, 2007); Prospectus Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at S-92

(Jan. 29, 2007); Prospectus Supplement for WaMu Series 2007-HE2 Trust (Form 424B5), at S-

57 (Apr. 6, 2007); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5),

at S-93 (Jun. 26, 2007).

               (b)    No mortgage loan had a loan-to-value ratio at origination
                      in excess of 100%

The above misstatement was contained in the following Offering Documents:              Prospectus

Supplement for Long Beach MLT 2006-6 (Form 424B5), at S-63 (Jul. 25, 2006); Prospectus

Supplement for Long Beach MLT 2006-9 (Form 424B5), at S-63 (Oct. 10, 2006); Prospectus

Supplement for Long Beach MLT 2006-10 (Form 424B5), at S-64 (Nov. 7, 2006); Prospectus

Supplement for Long Beach MLT 2006-11 (Form 424B5), at S-64 (Dec. 13, 2006).

               (c)    ResMAE originates loans secured by 1-4 unit residential
                      properties made to eligible borrowers with a vested fee
                      simple (or in some cases a leasehold) interest in the
                      property. The underwriting guidelines of ResMAE are
                      applied in accordance with a procedure which complies
                      with applicable federal and state laws and regulations and
                      generally require an appraisal of the mortgaged property
                      which conforms to Freddie Mac and/or Fannie Mae
                      standards, and if appropriate, a review appraisal.
                      Generally, appraisals are provided by qualified
                      independent appraisers licensed in their respective states.
                      Review appraisals may only be provided by appraisers
                      approved by the Originator. In most cases, ResMAE relies
                      on a statistical appraisal methodology provided by a third-
                      party.     Qualified independent appraisers must meet
                      minimum standards of licensing and provide errors and
                      omissions insurance in states where it is required in order to
                      become approved to do business with ResMAE. Each


                                               146
                     Uniform Residential Appraisal Report includes a market
                     data analysis based on recent sales of comparable homes in
                     the area and, where deemed appropriate, replacement cost
                     analysis based on the current cost of constructing a similar
                     home. The review appraisal may be a desk review, field
                     review or an automated valuation report that confirms or
                     supports the original appraiser’s value of the mortgaged
                     premises.

The above misstatement was contained in the following Offering Documents            Prospectus

Supplement for J.P. Morgan MAT 2006-RM1 (Form 424B5), at 50 (Sep. 28, 2006).

              (d)    The adequacy of the mortgaged property as security for
                     repayment of the related mortgage loan will generally have
                     been determined by an appraisal in accordance with pre-
                     established appraisal procedure guidelines for appraisals
                     established by or acceptable to the originator.          All
                     appraisals conform to the Uniform Standards of
                     Professional Appraisal Practice adopted by the Appraisal
                     Standards Board of the Appraisal Foundation and must
                     be on forms acceptable to Fannie Mae and/or Freddie
                     Mac. Appraisers may be staff appraisers employed by the
                     originator or independent appraisers selected in
                     accordance with pre-established appraisal procedure
                     guidelines established by or acceptable to the originator.
                     The appraisal procedure guidelines generally will have
                     required the appraiser or an agent on its behalf to
                     personally inspect the property and to verify whether the
                     property was in good condition and that construction, if
                     new, had been substantially completed. The appraisal
                     generally will have been based upon a market data analysis
                     of recent sales of comparable properties and, when deemed
                     applicable, an analysis based on income generated from the
                     property or a replacement cost analysis based on the current
                     cost of constructing or purchasing a similar property.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2006-HE3 (Form

424B5), at 52 (Nov. 13, 2006).

              (e)    Under the Underwriting Guidelines, WMC verifies the loan
                     applicant’s eligible sources of income for all products,
                     calculates the amount of income from eligible sources
                     indicated on the loan application, reviews the credit and


                                             147
                      mortgage payment history of the applicant and calculates
                      the Debt Ratio to determine the applicant’s ability to repay
                      the loan, and reviews the mortgaged property for
                      compliance with the Underwriting Guidelines.             The
                      Underwriting Guidelines are applied in accordance with a
                      procedure which complies with applicable federal and
                      state laws and regulations and requires, among other
                      things, (1) an appraisal of the mortgaged property which
                      conforms to Uniform Standards of Professional Appraisal
                      Practice and (2) an audit of such appraisal by a WMC-
                      approved appraiser or by WMC’s in-house collateral
                      auditors (who may be licensed appraisers) and such audit
                      may in certain circumstances consist of a second
                      appraisal, a field review, a desk review or an automated
                      valuation model.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2006-WMC4

(Form 424B5), at 45 (Dec. 20, 2006).

              (f)     The value of each property proposed as security for a
                      mortgage loan is determined by either a full appraisal, an
                      automated valuation model (“AVM”), a limited appraisal
                      conducted on a drive-by basis, or a statistical valuation.
                      Two full appraisals are generally required if the mortgage
                      loan exceeds $500,000 and beginning with loans originated
                      on or after April 23, 2006, $650,000. Origination means
                      for purposes of the following description of the
                      underwriting guidelines, the date of submission of a
                      mortgage application.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2007-CH3 (Form

424B5), at 74 (May 11, 2007); Prospectus Supplement for J.P. Morgan MAT 2007-CH4 (Form

424B5), at 75 (Jun. 15, 2007).

              (g)     Mortgaged properties that are to secure mortgage loans
                      generally are appraised by qualified independent
                      appraisers. These appraisals are required to conform to
                      the Uniform Standard of Professional Appraisal Practice
                      adopted by the Appraisal Standards Board of the



                                              148
                        Appraisal Foundation and are generally on forms
                        acceptable to Fannie Mae and Freddie Mac.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Bear Stearns ABS Trust 2007-2

(Form 424B5), at S-60 (May 18, 2007); Prospectus Supplement for Bear Stearns ABS I Trust

2007-HE3 (Form 424B5), at 30 (Apr. 2, 2007); Prospectus Supplement for Bear Stearns ABS I

Trust 2007-HE4 (Form 424B5), at 26 (Apr. 27, 2007); Prospectus Supplement for Bear Stearns

ABS I Trust 2006-HE7 (Form 424B5), at 53 (Aug. 30, 2006); Prospectus Supplement for Bear

Stearns ABS I Trust 2006-HE9 (Form 424B5), at 32 (Dec. 1, 2006); Prospectus Supplement for

SACO I Trust 2005-5 (Form 424B5), at S-42 (Aug. 19, 2005); Registration Statement (333-

125422) filed by Bear Stearns ABS I LLC (Form S-3/A, Am. 1), at 90 (Jun. 14, 2005);

Registration Statement (333-131374) filed by Bear Stearns ABS I LLC (Form S-3/A, Am. 5), at

S-42 (Mar. 31, 2006).

              (h)       Mortgaged properties generally will be appraised by
                        licensed appraisers or through an automated valuation
                        system. A licensed appraiser will generally address
                        neighborhood conditions, site and zoning status and
                        condition and valuation of improvements. In the case of
                        mortgaged properties secured by single family loans, the
                        appraisal report will generally include a reproduction cost
                        analysis (when appropriate) based on the current cost of
                        constructing a similar home and a market value analysis
                        based on recent sales of comparable homes in the area.
                        With respect to multifamily properties, commercial
                        properties and mixed-use properties, the appraisal must
                        specify whether an income analysis, a market analysis or a
                        cost analysis was used. An appraisal employing the income
                        approach to value analyzes a property's projected net cash
                        flow, capitalization and other operational information in
                        determining the property's value. The market approach to
                        value analyzes the prices paid for the purchase of similar
                        properties in the property's area, with adjustments made for
                        variations between those other properties and the property
                        being appraised. The cost approach to value requires the
                        appraiser to make an estimate of land value and then


                                                149
                     determine the current cost of reproducing the
                     improvements less any accrued depreciation. In any case,
                     the value of the property being financed, as indicated by the
                     appraisal, must support, and support in the future, the
                     outstanding loan balance. All appraisals by licensed
                     appraisers are required to be on forms acceptable to
                     Fannie Mae or Freddie Mac. Automated valuation
                     systems generally rely on publicly available information
                     regarding property values and will be described more fully
                     in the related prospectus supplement. An appraisal for
                     purposes of determining the Value of a mortgaged property
                     may include an automated valuation.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Registration Statement (333-115122) filed by Structured Asset

Mort. Investments II Inc. (Form S-3/A, Am. 1), at 15 (May 11, 2004); Prospectus Supplement

for Bear Stearns ALT-A Trust 2004-6 (Form 424B5), at 15 (Ju1. 1, 2004); Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE5 (Form 424B5), at 22 (May 30, 2007).

              (i)    Appraisal Review. An assessment of the adequacy of the
                     real property as collateral for the loan was made, primarily
                     based upon an appraisal of the property and a calculation of
                     the LTV ratio of the loan applied for and the combined
                     LTV to the appraised value of the property at the time of
                     origination. Appraisers determined a property’s value by
                     reference to the sales prices of comparable properties
                     recently sold, adjusted to reflect the condition of the
                     property as determined through inspection. As lenders that
                     generally specialize in loans made to credit impaired
                     borrowers, PCC implemented an appraisal review process
                     to support the value used to determine the LTV ratio. PCC
                     used a variety of steps in its appraisal review process in
                     order to attempt to ensure the accuracy of the value
                     provided by the initial appraiser. This includes obtaining
                     an independent automated property review on a majority of
                     the loans that it originates. PCC’s review process required
                     a written review on every appraisal report either by a
                     qualified independent underwriter or by a staff appraiser.
                     PCC employed several methods to determine which
                     appraisals are higher risk and attempted to direct those
                     reviews to one of its staff appraisers. The criteria for
                     identifying higher risk appraisal reports included those
                     properties receiving lower scores from the automated


                                             150
                    property review, properties with larger loan amounts and
                    those units and properties that fail a scoring template used
                    by the internal underwriting staff. PCC also employed an
                    appraisal review staff consisting mostly of staff appraisers.
                    As part of their review process, the review department
                    where available, verified the subject property’s sales
                    history, those of comparable properties as well as reviews
                    additional comparable data. In some cases the value of the
                    property used to determine the LTV ratio was reduced
                    where it was determined by PCC’s staff appraisers that the
                    original appraised value cannot be supported.

The above misstatement was contained in the following Offering Documents:           Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE1 (Form 424B5), at 40-41 (Jan. 31, 2007);

Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE2 (Form 424B5), at 39 (Feb. 28,

2007).

             (j)    Evaluation of the Adequacy of Collateral

                    The adequacy of the mortgaged property as collateral is
                    generally determined by an appraisal of the mortgaged
                    property that generally conforms to Fannie Mae and
                    Freddie Mac appraisal standards and a review of that
                    appraisal. The mortgaged properties are appraised by
                    licensed independent appraisers who have satisfied the
                    servicer’s appraiser screening process. In most cases,
                    properties in below average condition, including properties
                    requiring major deferred maintenance, are not acceptable
                    under the WMB sub-prime underwriting programs. Each
                    appraisal includes a market data analysis based on recent
                    sales of comparable homes in the area and, where deemed
                    appropriate, replacement cost analysis based on the current
                    cost of constructing a similar home.

The above misstatement was contained in the following Offering Documents:           Prospectus

Supplement for WaMu Series 2007-HE1 Trust (Form 424B5), at S-28 (Jan. 16, 2007);

Prospectus Supplement for WaMu Series 2007-HE2 Trust (Form 424B5), at S-31 (Apr. 6, 2007);

Prospectus Supplement for WMABS Series 2007-HE2 Trust (Form 424B5), at S-40 (Mar. 9,

2007).



                                            151
             (k)    Evaluation of the Adequacy of the Collateral

                    The adequacy of the mortgaged property as collateral
                    generally is determined by an appraisal made in accordance
                    with pre-established appraisal guidelines. At origination,
                    all appraisals are required to conform to the Uniform
                    Standards of Professional Appraisal Practice adopted by the
                    Appraisal Standards Board of the Appraisal Foundation,
                    and are made on forms acceptable to Fannie Mae and/or
                    Freddie Mac.       Appraisers may be staff appraisers
                    employed by Washington Mutual Bank or independent
                    appraisers selected in accordance with the pre-established
                    appraisal guidelines. Such guidelines generally require
                    that the appraiser, or an agent on its behalf, personally
                    inspect the property and verify whether the property is in
                    adequate condition and, if the property is new construction,
                    whether it is substantially completed. However, in the case
                    of mortgage loans underwritten through an automated
                    underwriting system, an automated valuation model may be
                    used, under which an appraiser does not inspect the
                    property. In either case, the valuation normally is based
                    upon a market data analysis of recent sales of comparable
                    properties and, in some cases, a replacement cost analysis
                    based on the current cost of constructing or purchasing a
                    similar property. In the case of a streamline refinance, the
                    appraisal guidelines may permit the property value
                    obtained for an existing mortgage loan (or a mortgage loan
                    which was previously refinanced) to be used. Title
                    insurance is required for all mortgage loans, except that for
                    mortgage loans secured by shares of cooperative
                    apartments, title insurance is not required for the
                    cooperative apartment building (but a lien search is
                    provided by the title company). Specific additional title
                    insurance coverage is required for some types of mortgage
                    loans.

The above misstatement was contained in the following Offering Documents:           Prospectus

Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at S-25-26 (Dec. 27, 2006);

Prospectus Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at S-26 (Jan. 29,

2007); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5), at S-27-28

(Jun. 26, 2007); Registration Statement (333-130795) filed by WaMu Asset Acceptance Corp.




                                            152
(Form S-3/A, Am. 1), at S-29 (Jan. 3, 2006); Registration Statement (333-141255) filed by

WaMu Asset Acceptance Corp. (Form S-3/A, Am. 1), at S-31 (Apr. 9, 2007).

                (l)   Evaluation of the Adequacy of Collateral

                      The adequacy of the mortgaged property as collateral is
                      generally determined by an appraisal of the mortgaged
                      property that generally conforms to Fannie Mae and
                      Freddie Mac appraisal standards and a review of that
                      appraisal. The mortgaged properties are appraised by
                      licensed independent appraisers who have satisfied the
                      servicer’s appraiser screening process. In most cases,
                      properties in below average condition, including properties
                      requiring major deferred maintenance, are not acceptable
                      under the Long Beach underwriting programs. Each
                      appraisal includes a market data analysis based on recent
                      sales of comparable homes in the area and, where deemed
                      appropriate, replacement cost analysis based on the current
                      cost of constructing a similar home.

The above misstatement was contained in the following Offering Documents:           Prospectus

Supplement for Long Beach MLT 2006-6 (Form 424B5), at S-36 (Jul. 25, 2006); Prospectus

Supplement for Long Beach MLT 2006-9 (Form 424B5), at S-36 (Oct. 10, 2006); Prospectus

Supplement for Long Beach MLT 2006-10 (Form 424B5), at S-37 (Nov. 7, 2006); Prospectus

Supplement for Long Beach MLT 2006-11 (Form 424B5), at S-37 (Dec. 13, 2006); Registration

Statement (333-131252) filed by Long Beach Sec. Corp. (Form S-3/A, Am. 1), at S-39 (Mar. 21,

2006).

         394.   WaMu and Long Beach misrepresented that in March 2006 they lowered the

maximum loan-to-value ratio for Full Doc “C” borrowers and that they “[i]mplemented DISSCO

[“data integrity search and score system”] screening for all loan submissions to minimize fraud

related to incorrect applicant information and property overvaluation.” These misstatements

were contained in the following Offering Documents: Free Writing Prospectus filed by Long

Beach Sec. Corp. (Form FWP), at 13 (Nov. 17, 2006); Free Writing Prospectus filed by WaMu



                                             153
Asset Acceptance Corp. (Form FWP), at 13 (Jan. 26, 2007); Free Writing Prospectus filed by

WaMu Asset Acceptance Corp. (Form FWP), at 14 (Jun. 8, 2007). WaMu also misrepresented

that in March 2007 it “[r]educed the maximum LTV/CLTV to 95% for all transactions.” This

misstatement was contained in the following Offering Document: Free Writing Prospectus filed

by WaMu Asset Acceptance Corp. (Form FWP), at 16 (Jun. 8, 2007).

       395.    WaMu and Long Beach also made the following misrepresentations:

               Risk Management – Appraisal Review
                  • 100 appraisal review by Long Beach Mortgage
                     underwriters
                  • 100% appraisal review to Washington Mutual standards

The above misstatements were contained in the following Offering Documents: Free Writing

Prospectus filed by Long Beach Sec. Corp. (Form FWP), at 24 (Nov. 17, 2006); Free Writing

Prospectus filed by WaMu Asset Acceptance Corp. (Form FWP), at 28 (Jan. 26, 2007); Free

Writing Prospectus filed by WaMu Asset Acceptance Corp. (Form FWP), at 19 (Jun. 8, 2007).

       396.    The above representations were materially false and misleading in that they

omitted to state that: (i) Defendants violated their stated appraisal standards and in many

instances materially inflated the values of the underlying mortgaged properties used to

collateralize the Certificates; (ii) the appraisers were not independent, and Defendants in fact

exerted pressure on appraisers to come back with pre-determined, inflated and false appraisal

values; (iii) the inflated appraisals obtained by Defendants did not conform to USPAP, Fannie

Mae or Freddie Mac standards and were not market data analyses of comparable homes in the

area or analyses of the cost of construction of a comparable home; and (iv) the forms of credit

enhancement applicable to certain tranches of the Certificates were affected by the total value of

the underlying properties, and thus were inaccurate as stated. Defendants omitted to disclose that




                                               154
they subordinated proper appraisals to the goal of originating and securitizing as many mortgage

loans as they could.

       397.    All of the representations regarding LTV ratios, described above, were materially

false and misleading because the underlying appraisals used to determine the LTVs were

improperly performed. The actual LTV ratios for numerous mortgage loans underlying the

Certificates would have exceeded 100% if the underlying properties had been appraised by an

independent appraiser according to USPAP, Freddie Mac or Fannie Mae as represented in the

Offering Documents.

       E.      DEFENDANTS MATERIALLY MISREPRESENTED THE ACCURACY OF THE CREDIT
               RATINGS ASSIGNED TO THE CERTIFICATES

       398.    Defendants represented in the Offering Documents that the all of the Certificates

purchased by Plaintiff were rated Aaa signifying that the risk of loss was virtually non-existent.

               (a)     It is a condition to the issuance of the securities of each
                       series offered by this prospectus that they shall have been
                       rated in one of the four highest rating categories by the
                       nationally recognized statistical rating agency or agencies
                       specified in the related prospectus supplement.

The above misstatement was contained in the following Offering Documents:               Prospectus

Supplement for J.P. Morgan MAT 2007-CH3 (Form 424B5), at 40 (May 11, 2007); Prospectus

Supplement for J.P. Morgan MAT 2007-CH4 (Form 424B5), at 40 (Jun. 15, 2007); Prospectus

Supplement for J.P. Morgan MAT 2006-HE3 (Form 424B5), at 122 (Nov. 13, 2006); Prospectus

Supplement for J.P. Morgan MAT 2006-RM1 (Form 424B5), at 122 (Sep. 28, 2006); Prospectus

Supplement for J.P. Morgan MAT 2006-WMC4 (Form 424B5), at 122 (Dec. 20, 2006);

Registration Statement (333-130192) filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am.

3), at 158 (Apr. 3, 2006); Registration Statement (333-141607) filed by JPMorgan Acceptance

Corp. I (Form S-3/A, Am. 1), at 122 (Apr. 23, 2007).



                                                155
              (b)    It is a condition to the issuance of any class of offered
                     securities that they shall have been rated not lower than
                     investment grade, that is, in one of the four highest rating
                     categories, by at least one Rating Agency.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Bear Stearns ALT-A Trust 2004-6

(Form 424B5), at 160 (Jul. 1, 2004); Prospectus Supplement for Bear Stearns ABS I Trust 2006-

HE7 (Form 424B5), at 299 (Aug. 30, 2006); Prospectus Supplement for Bear Stearns ABS I

Trust 2006-HE9 (Form 424B5), at 245 (Dec. 1, 2006); Prospectus Supplement for Bear Stearns

ABS Trust 2007-2 (Form 424B5), at 142 (May 18, 2007); Prospectus Supplement for Bear

Stearns ABS I Trust 2007-HE1 (Form 424B5), at 449 (Jan. 31, 2007); Prospectus Supplement

for Bear Stearns ABS I Trust 2007-HE2 (Form 424B5), at 276 (Feb. 28, 2007); Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE3 (Form 424B5), at 225 (Apr. 2, 2007);

Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE4 (Form 424B5), at 184 (Apr. 27,

2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE5 (Form 424B5), at 157

(May 30, 2007); Prospectus Supplement for SACO I Trust 2005-5 (Form 424B5), at 129 (Aug.

19, 2005); Registration Statement (333-125422) filed by Bear Stearns ABS I LLC (Form S-3/A,

Am. 1), at 76 (Jun. 14, 2005); Registration Statement (333-131374) filed by Bear Stearns ABS I

LLC (Form S-3/A, Am. 5), at 137 (Mar. 31, 2006); Registration Statement (333-115122) filed by

Structured Asset Mort. Investments II Inc. (Form S-3/A, Am. 1), at 158 (May 11, 2004).

              (c)    It is a condition to the issuance of any class of securities
                     that they shall have been rated not lower than investment
                     grade, that is, in one of the four highest rating categories,
                     by at least one nationally recognized statistical rating
                     organization.

The above misstatement was contained in the following Offering Documents:            Prospectus

Supplement for WMABS Series 2007-HE2 Trust (Form 424B5), at 137 (Mar. 9, 2007);



                                             156
Prospectus Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at 137 (Dec. 27,

2006); Prospectus Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at 137 (Jan.

29, 2007); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5), at 141

(Jun. 26, 2007); Prospectus Supplement for WaMu Series 2007-HE1 Trust (Form 424B5), at 138

(Jan. 16, 2007); Prospectus Supplement for WaMu Series 2007-HE2 Trust (Form 424B5), at 137

(Apr. 6, 2007); Registration Statement (333-141255) filed by WaMu Asset Acceptance Corp.

(Form S-3/A, Am. 1), at 141 (Apr. 9, 2007); Registration Statement (333-130795) filed by

WaMu Asset Acceptance Corp. (Form S-3/A, Am. 1), at 140 (Jan. 3, 2006); Prospectus

Supplement for Long Beach MLT 2006-6 (Form 424B5), at 131 (Jul. 25, 2006); Prospectus

Supplement for Long Beach MLT 2006-9 (Form 424B5), at 131 (Oct. 10, 2006); Prospectus

Supplement for Long Beach MLT 2006-10 (Form 424B5), at 131 (Nov. 7, 2006); Prospectus

Supplement for Long Beach MLT 2006-11 (Form 424B5), at 131 (Dec. 13, 2006); Registration

Statement (333-131252) filed by Long Beach Sec. Corp. (Form S-3/A, Am. 1), at 129 (Mar. 21,

2006).

         399.   By touting the ratings of the Certificates, and in making the above statements in

the Offering Documents, Defendants represented that they believed that the information provided

to the rating agencies to support these ratings accurately reflected the guidelines and practices of

Defendants JPMorgan Bank and EMC, as well as those of BSRMC, Encore, Long Beach, WaMu

Bank and the third party originators, and the specific qualities of the underlying loans. These

representations were false because Defendants did not disclose to the rating agencies the extent

of their and the third party originator’s improper underwriting and appraisals and that Defendants

otherwise gamed the rating agencies to ensure that they obtained the highest ratings even when




                                                157
those ratings were not warranted. The falsity of these representations is further evidenced by the

rapid downgrades of all of the Certificates within a few years of issuance.

       F.      DEFENDANTS MADE UNTRUE STATEMENTS REGARDING THE CREDIT
               ENHANCEMENTS APPLICABLE TO THE CERTIFICATES

       400.    Each Prospectus Supplement sets forth a particular amount by which the

aggregate stated principal balance of the mortgage loans is greater than the aggregate class

principal of the Certificates:

               (a)     CREDIT ENHANCEMENT

                               Subordination.       The subordinate classes of
                       certificates will provide credit enhancement for the senior
                       certificates…If the mortgage loans in any group experience
                       losses, then, generally… the principal amount of the
                       subordinate class of certificates that is lowest in seniority
                       and still outstanding will be reduced by the amount of those
                       realized losses until the total outstanding principal balance
                       of such class equals zero.

                                             *         *     *

                               Subordination is intended to enhance the likelihood
                       of regular distributions of interest and principal on the more
                       senior certificates and to afford those certificates protection
                       against realized losses on the mortgage loans.

                                             *         *     *

                               Overcollateralization. The mortgage loans bear
                       interest each month in an amount that is expected to exceed
                       the amount needed to pay monthly interest on the
                       certificates and to pay the fees and expenses of the trust …
                       A portion of this excess interest will be applied to absorb
                       realized losses on the mortgage loans and pay principal on
                       the offered certificates until the required level of
                       overcollateralization is restored. This application will
                       reduce the class principal amounts of the offered
                       certificates faster than the principal balances of the
                       mortgage loans. As a result, the aggregate principal
                       balance of the mortgage loans is expected to exceed the
                       aggregate class principal amount of the offered certificates
                       … This feature is referred to as “overcollateralization.”


                                                 158
                                           *         *     *

                             Excess Interest. The mortgage loans bear interest
                     each month that in the aggregate is expected to exceed the
                     amount needed to pay monthly interest on the certificates
                     and to pay the fees and expenses of the trust … The excess
                     interest from the mortgage loans each month will be
                     available to absorb realized losses on the mortgage loans
                     and to maintain overcollateralization at required levels as
                     described in the pooling agreement.

The above misstatements, in identical or substantially similar language, were contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2006-HE3 (Form

424B5), at 9-10 (Nov. 13, 2006); Prospectus Supplement for J.P. Morgan MAT 2007-CH3

(Form 424B5), at 12-14 (May 11, 2007); Prospectus Supplement for J.P. Morgan MAT 2007-

CH4 (Form 424B5), at 12-14 (Jun. 15, 2007); Prospectus Supplement for J.P. Morgan MAT

2006-RM1 (Form 424B5), at 10-12 (Sep. 28, 2006); Prospectus Supplement for J.P. Morgan

MAT 2006-WMC4 (Form 424B5), at 8-9 (Dec. 20, 2006); Registration Statement (333-130192)

filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am. 3), at 8 (Apr. 3, 2006); Registration

Statement (333-141607) filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am. 1), at 12

(Apr. 23, 2007).

              (b)    Credit Enhancement — General

                            Credit enhancement provides limited protection to
                     holders of specified certificates against shortfalls in
                     payments received on the mortgage loans. This transaction
                     employs the following forms of credit enhancement.

                     Excess Spread and Overcollateralization

                             The mortgage loans are expected to generate more
                     interest than is needed to pay interest on the offered
                     certificates because we expect the weighted average net
                     interest rate of the mortgage loans to be higher than the
                     weighted average pass-through rate on the offered
                     certificates. In addition, as overcollateralization increases,
                     such higher interest rate is paid on a principal balance of


                                               159
                     mortgage loans that is larger than the principal balance of
                     the certificates. Interest payments received in respect of the
                     mortgage loans in excess of the amount that is needed to
                     pay interest on the offered certificates and related trust
                     expenses will be used to reduce the total principal balance
                     of the certificates until a required level of
                     overcollateralization has been achieved. As of the closing
                     date, the aggregate principal balance of the mortgage loans
                     is approximately equal to the aggregate principal balance of
                     the certificates.

                     *      *       *

                     Subordination; Allocation of Losses

                             By issuing senior certificates and subordinate
                     certificates, the trust has increased the likelihood that senior
                     certificateholders will receive regular payments of interest
                     and principal.

                             In general, this loss protection is accomplished by
                     allocating any realized losses in excess of available excess
                     spread and any current overcollateralization to the
                     subordinate certificates, beginning with the subordinate
                     certificates with the lowest payment priority, until the
                     certificate principal balance of that subordinate class has
                     been reduced to zero and then allocating any loss to the
                     next most junior class of subordinate certificates, until the
                     certificate principal balance of each class of subordinate
                     certificates is reduced to zero.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Bear Stearns ALT-A Trust 2004-6

(Form 424B5), at S-11-12 (Jul. 1, 2004); Prospectus Supplement for Bear Stearns ABS I Trust

2006-HE7 (Form 424B5), at 15-17 (Aug. 30, 2006); Prospectus Supplement for Bear Stearns

ABS I Trust 2006-HE9 (Form 424B5), at 13-15 (Dec. 1, 2006); Prospectus Supplement for Bear

Stearns ABS Trust 2007-2 (Form 424B5), at S-9-10 (May 18, 2007); Prospectus Supplement for

Bear Stearns ABS I Trust 2007-HE1 (Form 424B5), at 16-18 (Jan. 31, 2007); Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE2 (Form 424B5), at 16-18 (Feb. 28, 2007);



                                              160
Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE3 (Form 424B5), at 12-14 (Apr. 2,

2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE4 (Form 424B5), at 11-12

(Apr. 27, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE5 (Form 424B5),

at 8-9 (May 30, 2007); Prospectus Supplement for SACO I Trust 2005-5 (Form 424B5), at S-10-

12 (Aug. 19, 2005); Registration Statement (333-125422) filed by Bear Stearns ABS I LLC

(Form S-3/A, Am. 1), at 138-39 (Jun. 14, 2005); Registration Statement (333-131374) filed by

Bear Stearns ABS I LLC (Form S-3/A, Am. 5), at S-12 (Mar. 31, 2006); Registration Statement

(333-115122) filed by Structured Asset Mort. Investments II Inc. (Form S-3/A, Am. 1), at S-32-

33 (May 11, 2004).

              (c)    CREDIT ENHANCEMENTS

                            Overcollateralization. The initial principal balance
                     of the mortgage loans is expected to exceed the aggregate
                     class principal balance of the certificates…by
                     approximately 0.55% of the initial principal balance of the
                     mortgage loans. This overcollateralization will be available
                     to absorb losses on the mortgage loans. The level of
                     overcollateralization may increase or decrease over time.

                            Excess Spread. The mortgage loans bear interest
                     each month in an amount that in the aggregate (together
                     with any net swap payments received from the swap
                     counterparty), and after deducting related servicing fees
                     and any net swap payments payable to the swap
                     counterparty, may exceed the amount needed to pay
                     monthly interest on the certificates. This excess interest
                     will be applied to pay principal on the certificates entitled
                     to principal in order to, among other things, maintain the
                     required level of overcollateralization. We cannot assure
                     you that such excess interest will be generated by the
                     mortgage loans or that it will be sufficient to maintain the
                     required level of overcollateralization.

                             Subordination. The senior certificates will have a
                     payment priority over the subordinate certificates. Each
                     class of subordinate certificates will be subordinate to each
                     other class of subordinate certificates with a higher
                     payment priority.


                                             161
The above misstatements, in identical or substantially similar language, were contained in the

following Offering Documents: Prospectus Supplement for WMALT Series 2007-HY1 Trust

(Form 424B5), at S-10 (Jan. 29, 2007); Prospectus Supplement for WMABS Series 2007-HE2

Trust (Form 424B5), at S-10-11 (Mar. 9, 2007); Prospectus Supplement for WMALT Series

2006-AR10 Trust (Form 424B5), at S-10 (Dec. 27, 2006); Prospectus Supplement for WMALT

Series 2007-OC2 Trust (Form 424B5), at S-10 (Jun. 26, 2007); Prospectus Supplement for

WaMu Series 2007-HE1 Trust (Form 424B5), at S-4-5 (Jan. 16, 2007); Prospectus Supplement

for WaMu Series 2007-HE2 Trust (Form 424B5), at S-4-5 (Apr. 6, 2007); Registration Statement

(333-141255) filed by WaMu Asset Acceptance Corp. (Form S-3/A, Am. 1), at S-87 (Apr. 9,

2007); Registration Statement (333-130795) filed by WaMu Asset Acceptance Corp. (Form S-

3/A, Am. 1), at 2 (Jan. 3, 2006).

               (d)     CREDIT ENHANCEMENT

                               Subordination is intended to enhance the likelihood
                       of regular distributions on the more senior classes of
                       certificates in respect of interest and principal and to afford
                       such certificates protection against realized losses on the
                       mortgage loans.

                       Excess Interest

                              The mortgage loans bear interest each month that in
                       the aggregate is expected to exceed the amount needed to
                       pay monthly interest on the certificates, the fees and
                       expenses of the trust, certain net amounts owed to the swap
                       counterparty and certain amounts required to be deposited
                       in the final maturity reserve account, if applicable. The
                       excess interest from the mortgage loans each month will be
                       available to absorb realized losses on the mortgage loans
                       and to maintain overcollateralization at required levels as
                       described in the pooling agreement.

                                               *         *   *

                       Overcollateralization



                                                   162
        As of the closing date, the aggregate principal
balance of the mortgage loans as of the cut-off date will
exceed the aggregate certificate principal balance of the
Class A Certificates, the Mezzanine Certificates, the Class
B Certificates and the Class P Certificates on the closing
date by approximately $22,684,869, which will be equal to
the original certificate principal balance of the Class C
Certificates. Such amount represents approximately 2.25%
of the aggregate principal balance of the mortgage loans as
of the cut-off date, and is approximately equal to the initial
amount of overcollateralization that will be required to be
provided under the pooling agreement. Excess interest
generated by the mortgage loans will be distributed as a
payment of principal to the offered certificates and the
Class B Certificates then entitled to distributions of
principal to the extent necessary to maintain the required
level of overcollateralization. The required level of
overcollateralization may be permitted to step down as
provided in the pooling agreement. We cannot assure you
that sufficient interest will be generated by the mortgage
loans to maintain the required level of overcollateralization.

                       *         *    *

Allocation of Losses

        If, on any distribution date, excess interest,
overcollateralization and any net payments by the swap
counterparty pursuant to the swap agreement are not
sufficient to absorb realized losses on the mortgage loans as
described…in this prospectus supplement, then realized
losses on such mortgage loans will be allocated to [certain
tranches in order of seniority].

                       *         *    *

Cross-Collateralization

        The trust provides for limited cross-collateralization
of the Group I Senior Certificates and the Group II Senior
Certificates through the application of interest generated by
one loan group to fund interest shortfalls on the Class A
Certificates primarily supported by the other loan group
and through the application of principal generated by one
loan group to fund certain distributions of principal on the
Class A Certificates primarily supported by the other loan
group.


                           163
The above misstatements, in identical or substantially similar language, were contained in the

following Offering Documents: Prospectus Supplement for Long Beach MLT 2006-10 (Form

424B5), at S-7-8 (Nov. 7, 2006); Prospectus Supplement for Long Beach MLT 2006-6 (Form

424B5), at S-6-7 (Jul. 25, 2006); Prospectus Supplement for Long Beach MLT 2006-9 (Form

424B5), at S-6-8 (Oct. 10, 2006); Prospectus Supplement for Long Beach MLT 2006-11 (Form

424B5), at S-6-8 (Dec. 13, 2006); Registration Statement (333-131252) filed by Long Beach

Sec. Corp. (Form S-3/A, Am. 1), at ii (Mar. 21, 2006).

       401.    The above statements were materially false and misleading when made because

they failed to disclose that because the loan originators systematically ignored their underwriting

standards and abandoned their property appraisal standards, borrowers would not be able to

repay their loans, foreclosure sales would not recoup the full value of the loans, and the

aggregate expected principal payments would not, nor could they be expected to, exceed the

aggregate class principal of the Certificates. As such, the Certificates were not protected with

the level of credit enhancement and overcollateralization represented to investors in the

Prospectus Supplements.

       G.      DEFENDANTS MADE UNTRUE STATEMENTS REGARDING OWNER-OCCUPANCY
               STATISTICS

       402.    Each of the Prospectus Supplements disseminated by Defendants in the course of

selling the Certificates contained tables substantially similar to that below, purporting to provide

data on the owner occupancy rates of mortgage loans underlying the Certificates. However, the

figures contained in these tables were materially false and misleading because the Issuing

Defendants systematically overstated the owner occupancy rates.




                                                164
        403.    For example, the following table appears in the Prospectus Supplement for WaMu

Series 2007-HE2 Trust (Form 424B5), at S-130 (Apr. 6, 2007), which was purchased in the

offering by ABP:




        404.    But an analysis by Mass Mutual of this same Certificate found that the true owner

occupancy rate for the loans included in this particular mortgage pool was only 67.23% not

83.87% for the loans in Group II as represented above. See Section VI, supra.5

        405.    Similar tables can be found in the following Offering Documents: Prospectus

Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at S-91 (Dec. 27, 2006);

Prospectus Supplement for WaMu Series 2007-HE1 Trust (Form 424B5), at S-122 (Jan. 16,

2007); Prospectus Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at S-93 (Jan.

29, 2007); Prospectus Supplement for WMABS Series 2007-HE2 Trust (Form 424B5), at S-159

(Mar. 9, 2007); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5), at

S-94 (Jun. 26, 2007).

        406.    Similarly, the following table appears in the Prospectus Supplement for Bear

Stearns ABS I Trust 2007-HE3 (Form 424B5), at 109 (Apr. 2, 2007), which was purchased in the

offering by ABP:




5
         Mass Mutual calculated the percentage of the number of mortgage loans identified as owner-
occupied (i.e., 100*2984/3558 = 83.87%) rather than the percent aggregate principal balance of the loans
identified as owner-occupied in the prospectus supplement.


                                                  165
          407.   An analysis by Mass Mutual of this same Certificate found that the true owner

occupancy rate for the loans included in this particular mortgage pool was only 85.28% not

94.48% for the loans in Group II as represented above. See Section VI, supra.

          408.   Likewise, the following tables appear in the Prospectus Supplement for Bear

Stearns     ABS     I   Trust   2007-HE2    (Form   424B5),    at   167    (Feb.   28,   2007):




                                              166
and




       409.    An analysis by the FHFA found that the true owner occupancy rate for the loans

included in these particular mortgage pools was only 87.15% not 93.73% for the loans in Group

II-2 and 82.59% not 88.94% for the loans in the Group II-3 as represented above. See Section

VI, supra.

       410.    Although Plaintiff purchased Group II-1 securities, the owner occupied numbers

in that table were similar to those above. Additionally, the prospectus supplement also included

a table that showed aggregate data for Group II loans.




and



                                               167
The tables above appear in the Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE2

(Form 424B5), at 156-57, 186 (Feb. 28, 2007).

          411.    Because the FHFA found owner occupancy discrepancies in two of the subgroups

of the Group II securities, it is highly likely that the third subgroup, purchased by Plaintiff, has

owner occupancy discrepancies as well.

          412.    In addition, the following tables appear in the Prospectus Supplement for Bear

Stearns     ABS     I   Trust   2007-HE1   (Form   424B5),    at   162,   171   (Jan.   31,   2007):




and




                                                168
       413.    An analysis by the Federal Housing Finance Agency found that the true owner

occupancy rates for the loans included in these particular mortgage pools were only 84.06% not

94.75% for the loans in Group II-2 and 80.41% not 89.24% for the loans in the Group II-3 as

represented above. See Section VI, supra.6

       414.    Although Plaintiff purchased Group II-1 securities, the owner occupied numbers

in that table were similar to those above. Additionally, the prospectus supplement also included

a table that showed aggregate data for Group II loans.




and



6
       FHFA, like Mass Mutual, calculated the percentage of the number of mortgage loans identified as
owner-occupied rather than the percent aggregate principal balance of the loans identified as owner-
occupied in the prospectus supplement.


                                                 169
The tables above appear in the Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE1

(Form 424B5), at 153, 179-80 (Jan. 31, 2007).

       415.   Again, because the Federal Housing Finance Agency found owner occupancy

discrepancies in two of the subgroups of the Group II securities, it is likely that the third

subgroup, purchased by Plaintiff has owner occupancy discrepancies as well.

       416.   Similar tables can be found in the following Offering Documents: Prospectus

Supplement for Bear Stearns ALT-A Trust 2004-6 (Form 424B5), at A-5 (Ju1. 1, 2004);

Prospectus Supplement for SACO I Trust 2005-5 (Form 424B5), at A-6 (Aug. 19, 2005);

Prospectus Supplement for Bear Stearns ABS I Trust 2006-HE7 (Form 424B5), at 168 (Aug. 30,

2006); Prospectus Supplement for Bear Stearns ABS I Trust 2006-HE9 (Form 424B5), at 116

(Dec. 1, 2006); Prospectus Supplement for Bear Stearns ABS Trust 2007-2 (Form 424B5), at A-

4 (May 18, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE1 (Form

424B5), at 153 (Jan. 31, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE2

(Form 424B5), at 156-57 (Feb. 28, 2007); Prospectus Supplement for Bear Stearns ABS I Trust

2007-HE4 (Form 424B5), at 91 (Apr. 27, 2007); Prospectus Supplement for Bear Stearns ABS I

Trust 2007-HE5 (Form 424B5), at 73 (May 30, 2007).




                                                170
       417.   The other Offering Documents represented similar information regarding owner

occupancy statistics. For example, the Offering Documents contained, in sum or substance, the

following representations:




The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2006-WMC4

(Form 424B5), at 25 (Dec. 20, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-HE3

(Form 424B5), at 30 (Nov. 13, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-RM1

(Form 424B5), at 30 (Sep. 28, 2006); Prospectus Supplement for J.P. Morgan MAT 2007-CH3

(Form 424B5), at 39 (May 11, 2007); Prospectus Supplement for J.P. Morgan MAT 2007-CH4

(Form 424B5), at 40 (Jun. 15, 2007).




The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Long Beach MLT 2006-11 (Form

424B5), at S-150 (Dec. 13, 2006); Prospectus Supplement for Long Beach MLT 2006-6 (Form

424B5), at S-152 (Jul. 25, 2006); Prospectus Supplement for Long Beach MLT 2006-9 (Form




                                            171
424B5), at S-152 (Oct. 10, 2006); Prospectus Supplement for Long Beach MLT 2006-10 (Form

424B5), at S-151 (Nov. 7, 2006).

       418.    The results of these loan-level reviews establish that, contrary to Defendants’

representations, a far lower percentage of borrowers did, in fact, occupy the mortgaged

properties than was represented to investors such as Plaintiff ABP in the Offering Documents.

       H.      DEFENDANTS MADE UNTRUE STATEMENTS REGARDING THE TRANSFER OF
               TITLE TO THE ISSUING TRUSTS

       419.    Defendants stated in each of the Offering Documents, using identical or

substantially similar language, that:

               (a)     Each seller or originator of loans that are included in a trust
                       fund for a series of securities will have made
                       representations and warranties in respect of the loans sold
                       by that seller or originated by that originator. Unless
                       otherwise specified in the related prospectus supplement,
                       the representations and warranties typically include the
                       following: …

                       -   The seller or originator had good title to each loan
                           and that loan was subject to no offsets, defenses,
                           counterclaims or rights of rescission except to the
                           extent that any buydown agreement may forgive some
                           indebtedness of a borrower….

The above misstatement was contained in the following Offering Documents:                Prospectus

Supplement for J.P. Morgan MAT 2007-CH4 (Form 424B5), at 28 (Jun. 15, 2007); Prospectus

Supplement for J.P. Morgan MAT 2007-CH3 (Form 424B5), at 28 (May 11, 2007); Prospectus

Supplement for J.P. Morgan MAT 2006-HE3 (Form 424B5), at 30 (Nov. 13, 2006); Prospectus

Supplement for J.P. Morgan MAT 2006-RM1 (Form 424B5), at 30 (Sep. 28, 2006); Prospectus

Supplement for J.P. Morgan MAT 2006-WMC4 (Form 424B5), at 30 (Dec. 20, 2006);

Registration Statement (333-130192) filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am.




                                                172
3), at 38 (Apr. 3, 2006); Registration Statement (333-141607) filed by JPMorgan Acceptance

Corp. I (Form S-3/A, Am. 1), at 30 (Apr. 23, 2007).

              (b)     Assignment of Agency and Private Label Securities. The
                      depositor will cause the Agency and Private Label
                      Securities to be registered in the name of the trustee (or its
                      nominee or correspondent). The trustee (or its nominee or
                      correspondent) will take possession of any certificated
                      Agency or Private Label Securities. The trustee will not
                      typically be in possession of, or be assignee of record of,
                      any loans underlying the Agency or Private Label
                      Securities.     See “The Trust Funds—Private Label
                      Securities” in this prospectus. Each Agency and Private
                      Label Security will be identified in a schedule appearing as
                      an exhibit to the related agreement, which will specify the
                      original principal amount, principal balance as of the cut-
                      off date, annual pass-through rate or interest rate and
                      maturity date for each Agency and Private Label Security
                      conveyed to the related trust fund. In the agreement, the
                      depositor will represent and warrant to the trustee that: ...

                      -   immediately prior to the conveyance of the Agency or
                          Private Label Securities, the depositor had good title
                          and was the sole owner of the Agency or Private Label
                          Securities….

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Bear Stearns ABS I Trust 2006-HE9

(Form 424B5), at 197 (Dec. 1, 2006); Prospectus Supplement for Bear Stearns ABS I Trust

2006-HE7 (Form 424B5), at 251 (Aug. 30, 2006); Prospectus Supplement for Bear Stearns ABS

Trust 2007-2 (Form 424B5), at 64(May 18, 2007); Prospectus Supplement for Bear Stearns ABS

I Trust 2007-HE1 (Form 424B5), at 228 (Jan. 31, 2007); Prospectus Supplement for Bear Stearns

ABS I Trust 2007-HE2 (Form 424B5), at 233-34 (Feb. 28, 2007); Prospectus Supplement for

Bear Stearns ABS I Trust 2007-HE3 (Form 424B5), at 183-84 (Apr. 2, 2007); Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE4 (Form 424B5), at 147 (Apr. 27, 2007);

Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE5 (Form 424B5), at 127 (May 30,



                                               173
2007); Prospectus Supplement for SACO I Trust 2005-5 (Form 424B5), at 61-62 (Aug. 19,

2005); Registration Statement (333-125422) filed by Bear Stearns ABS I LLC (Form S-3/A, Am.

1), at 36 (Jun. 14, 2005); Registration Statement (333-131374) filed by Bear Stearns ABS I LLC

(Form S-3/A, Am. 5), at 63 (Mar. 31, 2006).

              (c)    Each Seller will have made representations and warranties
                     in respect of the mortgage loans and/or mortgage securities
                     sold by the Seller and evidenced by a series of securities.
                     In the case of mortgage loans, representations and
                     warranties will generally include, among other things, that
                     as to each mortgage loan: …

                     • the Seller has good title to the mortgage loan and the
                     mortgage loan was subject to no offsets, defenses or
                     counterclaims except as maybe provided under the Relief
                     Act and except to the extent that any buydown agreement
                     exists for a buydown mortgage loan;
                     - there are no mechanics’ liens or claims for work, labor
                         or material affecting the related mortgaged property
                         which are, or may be a lien prior to, or equal with, the
                         lien of the related mortgage (subject only to permissible
                         title insurance exceptions)….

The above misstatement was contained in the following Offering Documents:            Prospectus

Supplement for Bear Stearns ALT-A Trust 2004-6 (Form 424B5), at 16-17 (Jul. 1, 2004);

Registration Statement (333-115122) filed by Structured Asset Mort. Investments II Inc. (Form

S-3/A, Am. 1), at 16-17 (May 11, 2004).

              (d)    Under the mortgage loan purchase agreement pursuant to
                     which the sponsor will sell the mortgage loans to the
                     depositor, the sponsor will make representations and
                     warranties in respect of the mortgage loans, which
                     representations and warranties the depositor will assign to
                     the trust pursuant to the pooling agreement. Among those
                     representations and warranties are the following: …

                     -   Immediately prior to the assignment of the mortgage
                         loans to the depositor, the sponsor had good title to,
                         and was the sole legal and beneficial owner of, each
                         mortgage loan, free and clear of any pledge, lien,
                         encumbrance or security interest and has full right and


                                              174
                          authority, subject to no interest or participation of, or
                          agreement with, any other party to sell and assign the
                          mortgage loan….

The above misstatement was contained in the following Offering Documents:             Prospectus

Supplement for WMABS Series 2007-HE2 Trust (Form 424B5), at S-66 (Mar. 9, 2007);

Prospectus Supplement for WaMu Series 2007-HE1 Trust (Form 424B5), at S-54 (Jan. 16,

2007); Prospectus Supplement for WaMu Series 2007-HE2 Trust (Form 424B5), at S-56 (Apr. 6,

2007).

                (e)   Under the pooling agreement, the depositor will make the
                      following representation and warranty to the trust in respect
                      of the mortgage loans:

                      -   Immediately prior to the sale and assignment by the
                          depositor to the trustee on behalf of the trust of each
                          mortgage loan, the depositor had good and
                          marketable title to each mortgage loan subject to no
                          prior lien, claim, participation interest, mortgage,
                          security interest, pledge, charge or other encumbrance
                          or other interest of any nature….

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Long Beach MLT 2006-6 (Form

424B5), at S-67 (Jul. 25, 2006); Prospectus Supplement for Long Beach MLT 2006-9 (Form

424B5), at S-67 (Oct. 10, 2006); Prospectus Supplement for Long Beach MLT 2006-10 (Form

424B5), at S-68 (Nov. 7, 2006); Prospectus Supplement for Long Beach MLT 2006-11 (Form

424B5), at S-68 (Dec. 13, 2006); Registration Statement (333-131252) filed by Long Beach Sec.

Corp. (Form S-3/A, Am. 1), at 36 (Mar. 21, 2006).

         420.   These representations were false because Defendants routinely failed to

physically deliver the original promissory notes and security instruments for the mortgage loans

to the issuing trusts, as required by applicable state laws and the PSAs. These representations

were also false because Defendants routinely failed to execute valid endorsements of the


                                              175
documents at the time of the purported transfer, as also required by applicable state laws and the

PSAs. The Issuing Trusts therefore did not possess good title to many of the mortgage loans and

lacked legal authority to enforce many of the mortgage loans against the borrowers in the event

of default.

        I.     DEFENDANTS MADE FALSE AND MISLEADING STATEMENTS REGARDING THE
               CHARACTERISTICS OF THE MORTGAGE POOLS

        421.   Defendants    issued   Offering    Documents    that   contained   the   following

misrepresentations concerning the characteristics of the mortgage pools issued by JPMorgan,

Bear Stearns, WaMu and Long Beach:

               (a)    Certain general information with respect to the Mortgage
                      Loans is set forth below. Prior to the Closing Date,
                      Mortgage Loans may be removed from the Trust Fund and
                      other mortgage loans may be substituted therefor. The
                      Depositor believes that the information set forth herein
                      with respect to the Mortgage Loans as presently
                      constituted is representative of the characteristics of the
                      Mortgage Loans as they will be constituted at the Closing
                      Date, although the numerical data and certain other
                      characteristics of the Mortgage Loans described herein
                      may vary within a range of plus or minus 5%.

The above misstatements, in identical or substantially similar language, were contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2007-CH3 (Form

424B5), at 30 (May 11, 2007); Prospectus Supplement for J.P. Morgan MAT 2007-CH4 (Form

424B5), at 31 (Jun. 15, 2007); Prospectus Supplement for J.P. Morgan MAT 2006-HE3 (Form

424B5), at 24 (Nov. 13, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-RM1 (Form

424B5), at 24 (Sep. 28, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-WMC4

(Form 424B5), at 20 (Dec. 20, 2006); Registration Statement (333-130192) filed by JPMorgan

Acceptance Corp. I (Form S-3/A, Am. 3), at 13 (Apr. 3, 2006); Registration Statement (333-

141607) filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am. 1), at 19 (Apr. 23, 2007).



                                                 176
              (b)    The following is a brief description of the assets expected
                     to be included in the trust funds. If specific information
                     respecting the trust fund assets is not known at the time the
                     related series of securities initially is offered, more general
                     information of the nature described in this prospectus will
                     be provided in the related prospectus supplement, and
                     specific information will be set forth in a Current Report on
                     Form 8-K to be filed with the SEC within fifteen days after
                     the initial issuance of those securities. A copy of the
                     agreement with respect to each series of securities will be
                     attached to the Form 8-K and will be available for
                     inspection at the corporate trust office of the trustee
                     specified in the related prospectus supplement. A schedule
                     of the loans, agency securities and/or private mortgage-
                     backed securities relating to a series will be attached to the
                     agreement delivered to the trustee upon delivery of the
                     securities. If so specified in the related prospectus
                     supplement, the actual statistical characteristics of a pool as
                     of the closing date may differ from those set forth in the
                     prospectus supplement. However, in no event will more
                     than five percent of the assets as a percentage of the cut-
                     off date pool principal balance vary from the
                     characteristics described in the related prospectus
                     supplement.

The above misstatements, in identical or substantially similar language, were contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2007-CH3 (Form

424B5), at 171-72 (May 11, 2007); Prospectus Supplement for J.P. Morgan MAT 2007-CH4

(Form 424B5), at 175-76 (Jun. 15, 2007); Prospectus Supplement for J.P. Morgan MAT 2006-

HE3 (Form 424B5), at 121 (Nov. 13, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-

RM1 (Form 424B5), at 118 (Sep. 28, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-

WMC4 (Form 424B5), at 103-04 (Dec. 20, 2006); Registration Statement (333-130192) filed by

JPMorgan Acceptance Corp. I (Form S-3/A, Am. 3), at 82 (Apr. 3, 2006); Registration Statement

(333-141607) filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am. 1), at 98 (Apr. 23,

2007).

              (c)    If specific information about the loans is not known to the
                     depositor at the time the related securities are initially


                                              177
                     offered, more general information of the nature described
                     above will be provided in the related prospectus
                     supplement, and specific information will be set forth in
                     the Current Report on Form 8-K filed within 15 days of
                     the closing date.

The above misstatements, in identical or substantially similar language, were contained in the

following Offering Documents: Prospectus Supplement for J.P. Morgan MAT 2007-CH3 (Form

424B5), at 175 (May 11, 2007); Prospectus Supplement for J.P. Morgan MAT 2007-CH4 (Form

424B5), at 179 (Jun. 15, 2007); Prospectus Supplement for J.P. Morgan MAT 2006-HE3 (Form

424B5), at 124 (Nov. 13, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-RM1 (Form

424B5), at 121 (Sep. 28, 2006); Prospectus Supplement for J.P. Morgan MAT 2006-WMC4

(Form 424B5), at 106 (Dec. 20, 2006); Registration Statement (333-130192) filed by JPMorgan

Acceptance Corp. I (Form S-3/A, Am. 3), at 85 (Apr. 3, 2006); Registration Statement (333-

141607) filed by JPMorgan Acceptance Corp. I (Form S-3/A, Am. 1), at 101 (Apr. 23, 2007).

              (d)    We have provided below and in Schedule A to this
                     prospectus supplement information with respect to the
                     mortgage loans that we expect to include in the pool of
                     mortgage loans in the trust fund. Prior to the closing date
                     of May 16, 2007, we may remove mortgage loans from the
                     mortgage pool and we may substitute other mortgage loans
                     for the mortgage loans we remove. The depositor believes
                     that the information set forth herein will be representative
                     of the characteristics of the mortgage pool as it will be
                     constituted at the time the certificates are issued, although
                     the range of mortgage rates and maturities and other
                     characteristics of the mortgage loans may vary. The
                     actual mortgage loans included in the trust fund as of the
                     closing date may vary from the mortgage loans as
                     described in this prospectus supplement by up to plus or
                     minus 5% as to any of the material characteristics described
                     herein. If, as of the closing date, any material pool
                     characteristics differs by 5% or more from the description
                     in this prospectus supplement, revised disclosure will be
                     provided either in a supplement to this prospectus
                     supplement, or in a current report on Form 8-K. Unless
                     we have otherwise indicated, the information we present
                     below and in Schedule A is expressed as of the cut-off date,


                                             178
                     which is April 1, 2007. The mortgage loan principal
                     balances that are transferred to the trust will be the
                     aggregate principal balance as of the cut-off date, April 1,
                     2007.

                     The mortgage loans will be selected for inclusion in the
                     mortgage pool based on rating agency criteria,
                     compliance with representations and warranties, and
                     conformity to criteria relating to the characterization of
                     securities for tax, ERISA, SMMEA, Form S-3 eligibility
                     and other legal purposes.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Bear Stearns ABS Trust 2007-2

(Form 424B5), at S-32 (May 18, 2007); Prospectus Supplement for Bear Stearns ALT-A Trust

2004-6 (Form 424B5), at AX-7, 12-13 (Jul. 1, 2004); Prospectus Supplement for Bear Stearns

ABS I Trust 2006-HE7 (Form 424B5), at 33 (Aug. 30, 2006); Prospectus Supplement for Bear

Stearns ABS I Trust 2006-HE9 (Form 424B5), at 26 (Dec. 1, 2006); Prospectus Supplement for

Bear Stearns ABS I Trust 2007-HE1 (Form 424B5), at 30 (Jan. 31, 2007); Prospectus

Supplement for Bear Stearns ABS I Trust 2007-HE2 (Form 424B5), at 31 (Feb. 28, 2007);

Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE3 (Form 424B5), at 25 (Apr. 2,

2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE4 (Form 424B5), at 21-22

(Apr. 27, 2007); Prospectus Supplement for Bear Stearns ABS I Trust 2007-HE5 (Form 424B5),

at 17 (May 30, 2007); Prospectus Supplement for SACO I Trust 2005-5 (Form 424B5), at S-33

(Aug. 19, 2005); Registration Statement (333-125422) filed by Bear Stearns ABS I LLC (Form

S-3/A, Am. 1), at 132 (Jun. 14, 2005); Registration Statement (333-131374) filed by Bear

Stearns ABS I LLC (Form S-3/A, Am. 5), at S-33 (Mar. 31, 2006); Registration Statement (333-

115122) filed by Structured Asset Mort. Investments II Inc. (Form S-3/A, Am. 1), at S-39 (May

11, 2004).




                                             179
              (e)     The description of the mortgage pool and the mortgaged
                      properties in this section and in Appendix B is based on the
                      mortgage loans as of the close of business on the Cut-Off
                      Date, after deducting the scheduled principal payments due
                      on or before that date, whether or not actually received. All
                      references in this prospectus supplement to “principal
                      balance” refer to the principal balance as of the Cut-Off
                      Date, unless otherwise specifically stated or required by the
                      context. Due to rounding, percentages may not sum to
                      100%. References to percentages of mortgage loans refer
                      in each case to the percentage of the aggregate principal
                      balance of the mortgage loans, based on the outstanding
                      principal balances determined as described above.
                      References to weighted averages refer in each case to
                      weighted averages by principal balance as of the Cut-Off
                      Date of the mortgage loans determined in the same way.
                      Before the issuance of the certificates, mortgage loans may
                      be removed from the mortgage pool as a result of Payoffs,
                      delinquencies or otherwise. If that happens, other mortgage
                      loans may be included in the mortgage pool. The depositor
                      believes that the information in this prospectus
                      supplement for the mortgage pool is representative of the
                      characteristics of the mortgage pool as it will actually be
                      constituted when the certificates are issued, although the
                      range of mortgage interest rates and other characteristics
                      of the mortgage loans in the mortgage pool may vary. See
                      “—Additional Information” in this prospectus supplement.

The above misstatement was contained in the following Offering Documents:             Prospectus

Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at S-43 (Jan. 29, 2007);

Prospectus Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at S-42 (Dec. 27,

2006); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5), at S-45 (Jun.

26, 2007); Registration Statement (333-141255) filed by WaMu Asset Acceptance Corp. (Form

S-3/A, Am. 1), at S-15 (Apr. 9, 2007).

              (f)     The composition and characteristics of a mortgage pool
                      containing revolving credit loans may change from time to
                      time as a result of any draws made after the related cut-off
                      date under the related credit line agreements. If mortgage
                      assets are transferred to or repurchased from the trust after
                      the date of the related prospectus supplement other than as
                      a result of any draws under credit line agreements relating


                                              180
                      to revolving credit loans, the addition or deletion will be
                      noted in a Distribution Report on Form 10-D or a Current
                      Report on Form 8-K, as appropriate. In no event, however,
                      will more than 5%, by principal balance at the cut-off
                      date, of the mortgage assets deviate from the
                      characteristics of the mortgage assets set forth in the
                      related prospectus supplement other than as a result of
                      any draws under credit line agreements relating to
                      revolving credit loans.

The above misstatement was contained in the following Offering Documents:           Prospectus

Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at 35 (Jan. 29, 2007);

Prospectus Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at 35 (Dec. 27,

2006); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5), at 37 (Jun.

26, 2007); Prospectus Supplement for WaMu Series 2007-HE1 Trust (Form 424B5), at 34 (Jan.

16, 2007); Prospectus Supplement for WaMu Series 2007-HE2 Trust (Form 424B5), at 35 (Apr.

6, 2007); Registration Statement (333-141255) filed by WaMu Asset Acceptance Corp. (Form S-

3/A, Am. 1), at 37 (Apr. 9, 2007).

               (g)    The sponsor selected the mortgage loans from among its
                      portfolio of mortgage loans held for sale based on a
                      variety of considerations, including type of mortgage loan,
                      geographic concentration, range of mortgage interest rates,
                      principal balance, credit scores and other characteristics
                      described in Appendix B to this prospectus supplement,
                      and taking into account investor preferences and the
                      depositor’s objective of obtaining the most favorable
                      combination of ratings on the certificates.

The above misstatement was contained in the following Offering Documents:           Prospectus

Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at S-48 (Jan. 29, 2007);

Prospectus Supplement for WMABS Series 2007-HE2 Trust (Form 424B5), at S-68 (Mar. 9,

2007); Prospectus Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at S-47

(Dec. 27, 2006); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5), at

S-50 (Jun. 26, 2007); Prospectus Supplement for WaMu Series 2007-HE1 Trust (Form 424B5),


                                             181
at S-55 (Jan. 16, 2007); Prospectus Supplement for WaMu Series 2007-HE2 Trust (Form

424B5), at S-58 (Apr. 6, 2007); Registration Statement (333-141255) filed by WaMu Asset

Acceptance Corp. (Form S-3/A, Am. 1), at S-19 (Apr. 9, 2007); Registration Statement (333-

130795) filed by WaMu Asset Acceptance Corp. (Form S-3/A, Am. 1), at S-19 (Jan. 3, 2006).

              (h)    The sponsor used no adverse selection procedures in
                     selecting the mortgage loans from among the outstanding
                     adjustable rate conventional mortgage loans owned by it
                     which were available for sale and as to which the
                     representations and warranties in the mortgage loan sale
                     agreement could be made….

The above misstatement was contained in the following Offering Documents:           Prospectus

Supplement for WMALT Series 2007-HY1 Trust (Form 424B5), at S-48 (Jan. 29, 2007);

Prospectus Supplement for WMALT Series 2006-AR10 Trust (Form 424B5), at S-47 (Dec. 27,

2006); Prospectus Supplement for WMALT Series 2007-OC2 Trust (Form 424B5), at S-50 (Jun.

26, 2007); Registration Statement (333-141255) filed by WaMu Asset Acceptance Corp. (Form

S-3/A, Am. 1), at S-19 (Apr. 9, 2007); Registration Statement (333-130795) filed by WaMu

Asset Acceptance Corp. (Form S-3/A, Am. 1), at S-18 (Jan. 3, 2006).

              (i)    The statistical information presented in this prospectus
                     supplement relates to the mortgage loans and related
                     mortgaged properties in each loan group as of July 1, 2006,
                     the cut-off date. As of the cut-off date, the mortgage pool
                     will consist of approximately 7,958 mortgage loans with an
                     aggregate scheduled principal balance as of the cut-off date
                     of    approximately      $1,688,108,026     consisting    of
                     approximately 3,552 Group I mortgage loans with an
                     aggregate scheduled principal balance as of the cut-off date
                     of approximately $529,123,697 and approximately 4,406
                     Group II mortgage loans with an aggregate scheduled
                     principal balance as of the cut-off date of approximately
                     $1,158,984,329. Prior to the closing date, mortgage loans
                     may be removed from the mortgage pool as a result of
                     incomplete documentation, delinquency, payment in full,
                     insufficient collateral value or otherwise if the depositor
                     deems such removal necessary or desirable, and may be
                     prepaid at any time, and some mortgage loans may be


                                             182
                     added to the mortgage pool.          As a result, the
                     characteristics of the mortgage loans on the closing date
                     may differ from the characteristics presented in this
                     prospectus supplement; however, such differences are not
                     expected to be material.

The above misstatement, in identical or substantially similar language, was contained in the

following Offering Documents: Prospectus Supplement for Long Beach MLT 2006-6 (Form

424B5), at S-61 (Jul. 25, 2006); Prospectus Supplement for Long Beach MLT 2006-9 (Form

424B5), at S-61 (Oct. 10, 2006); Prospectus Supplement for Long Beach MLT 2006-10 (Form

424B5), at S-62 (Nov. 7, 2006); Prospectus Supplement for Long Beach MLT 2006-11 (Form

424B5), at S-62 (Dec. 13, 2006); Registration Statement (333-131252) filed by Long Beach Sec.

Corp. (Form S-3/A, Am. 1), at S-15 (Mar. 21, 2006).

              (j)    The sponsor selected the mortgage loans from among its
                     portfolio of mortgage loans held for sale based on a
                     variety of considerations, including type of mortgage loan,
                     geographic concentration, range of mortgage interest rates,
                     principal balance, credit scores and other characteristics
                     described in Appendix A (which is incorporated by
                     reference into this prospectus supplement) to this
                     prospectus supplement, and taking into account investor
                     preferences and the depositor’s objective of obtaining the
                     most favorable combination of ratings on the certificates.

The above misstatement was contained in the following Offering Documents:          Prospectus

Supplement for Long Beach MLT 2006-6 (Form 424B5), at S-67-68 (Jul. 25, 2006); Prospectus

Supplement for Long Beach MLT 2006-9 (Form 424B5), at S-68 (Oct. 10, 2006); Prospectus

Supplement for Long Beach MLT 2006-10 (Form 424B5), at S-69 (Nov. 7, 2006); Prospectus

Supplement for Long Beach MLT 2006-11 (Form 424B5), at S-69 (Dec. 13, 2006); Registration

Statement (333-131252) filed by Long Beach Sec. Corp. (Form S-3/A, Am. 1), at S-69 (Mar. 21,

2006).




                                             183
       422.    These representations were false because Defendants were not concerned with

investor preferences and instead included mortgage loans in the mortgage pools that were in fact

the kinds of risky loans that conservative investors such as Plaintiff avoided. Indeed, Defendants

did purposefully and intentionally use adverse selection procedures when choosing those risky

and soon-to-fail mortgages to be securitized.

XI.    DEFENDANTS KNEW THAT THE OFFERING DOCUMENTS CONTAINED
       MATERIAL MISSTATEMENTS AND OMISSIONS

       423.    The allegations below are made in support of Plaintiff’s claims under the

common-law fraud, fraudulent inducement and aiding and abetting claims, and not in support of

its negligent misrepresentation claim and Securities Act claims, which are based solely on

negligence.

       424.    As set forth above, at all relevant times, Defendants knew that the Offering

Documents contained material misstatements and omissions.            Defendants’ knowledge is

evidenced by, among other things, the following:

               •      Defendants’ loan personnel, and loan personnel at Defendants’
                      subsidiaries and affiliates, engaged in such practices as entering false
                      information into underwriting programs, accepting false appraisals, not
                      verifying borrower incomes, accepting unrealistic stated incomes, and
                      altering loan documents. These practices were put into place by
                      management personnel seeking to maximize loan volume to fill the
                      securitization pipeline. Defendants were aware that their loan personnel
                      were committing fraud and did nothing to remedy it or alert investors. See
                      ¶¶ 113-124; 135; 139-140; 145-160; 175-224, supra.

               •      As the housing boom accelerated, Defendants relaxed their loan
                      underwriting standards and purchased loans from third-party originators
                      whom they knew to be unreliable. Defendants were aware that their
                      underwriting processes were not adequate to assess the quality of the
                      purchased loans, and that in some instances loans were securitized without
                      ever having been cleared through due diligence. See ¶¶ 125-131; 161-170;
                      225-231, supra.

               •      The limited due diligence that Defendants did perform on the mortgage
                      loans being pooled for securitization demonstrated that there were


                                                184
    significant and extensive defects in the mortgage loans. Defendants
    commissioned due diligence reports from various external parties which
    showed that a significant proportion of the sampled loans analyzed had
    defects, including breaches of the Originators’ underwriting guidelines
    and improper appraisals. Despite this knowledge, Defendants waived the
    breaches and allowed large numbers of these defective mortgages to be
    included in the mortgage pools used to collateralize the Certificates sold to
    Plaintiff. See id.

•   The Defendants also knew that those mortgages were being issued to
    borrowers that were likely to default, as evidenced by the high percentage
    of loans underlying the Certificates that are currently in foreclosure, as
    well as the percentage of loans underlying the Certificates that are
    currently delinquent by more than 90 days. See supra ¶¶ 192; 205; infra
    ¶¶ 475; 528.

•   Defendants sought out the loans on their books that they considered most
    likely to default and rushed to securitize them before they could become
    unsalable, placing these adversely-selected assets into mortgage pools so
    as to offload the risks onto unsuspecting investors such as Plaintiff. See
    ¶¶ 132-135; 139-140; 170-175; 231-236, supra.

•   Defendants asserted billions of dollars in repurchase claims against third-
    party originators that sold them defective loans. However, rather than
    demand that the originators repurchase the loans, which would have
    required Defendants to repurchase the loans from the Issuing Trusts and
    replace them with higher-quality collateral, Defendants entered into
    settlements with the originators for their own benefit, thereby obtaining
    compensation for defects in assets that they no longer owned. Defendants
    did not inform their RMBS investors that they had identified defects in
    trust assets or recovered funds from the originators. See ¶¶ 171-176,
    supra.

•   Defendants knew that the mortgages they were acquiring from the various
    originators as quickly as possible and packaging into the Certificates sold
    to investors such as Plaintiffs were not worthy of their high credit ratings.
    The ratings of the Certificates, which were investment grade and in most
    cases rated AAA at the time they were sold to the Plaintiffs, have declined
    substantially to their current non-investment grade and/or junk ratings.
    See ¶¶ 355-364, supra.




                             185
XII.   THE LIABILITY OF THE CONTROL PERSON DEFENDANTS

       A.      DEFENDANT JPMORGAN CHASE

       425.    Defendant JPMorgan Chase was in a position to and in fact controlled each of

Defendants JPM Acceptance, JPMM Acquisition, and JPMS.            Defendant JPMorgan Chase

operated its consolidated subsidiaries as a collective enterprise, making significant strategic

decisions for its subsidiaries, monitoring enterprise-wide risk, and maximizing profit for

JPMorgan Chase.

       426.    JPMorgan Chase encouraged and/or allowed its subsidiaries to misrepresent the

mortgage loans’ characteristics in the Registration Statements and establish special-purpose

financial entities such as Defendant JPM Acceptance, and the JP Morgan Trusts to serve as

conduits for the mortgage loans.

       427.    Unlike arm’s-length securitizations where the loan originator, depositor,

underwriters, and issuers are unrelated third parties, here the transactions among the sponsor

(JPMM Acquisition); the depositor (JPM Acceptance) and the JPMorgan Trusts were not arm’s-

length transactions at all, as JPMorgan Chase controlled every aspect of the securitization

processes. Furthermore, the JPMorgan Chase-controlled entity JPMS was the underwriter for the

securitizations.

       428.    Some of the mortgage loans underlying the Certificates were originated by third

party originators and acquired by the sponsor, JPMM Acquisition. JPMorgan Chase created

JPM Acceptance to acquire mortgage loans from JPMM Acquisition and to transfer the loans to

the JPMorgan Trusts for sale to investors as RMBS. As the depositor, JPM Acceptance was a

shell corporation with no assets of its own, and had the same directors and officers as other

JPMorgan entities. Through these executives, JPMorgan Chase exercised actual day-to-day




                                             186
control over JPM Acceptance. Revenues flowing from the issuance and sale of the Certificates

were passed through to JPMorgan Chase.

          429.      JPM Acceptance in turn created the JPMorgan Trusts.             Like the Issuing

Defendants, the JPMorgan Trusts were shell entities that were established for the sole purpose of

holding the pools of mortgage loans assembled by the Issuing Defendants, and issuing

Certificates collateralized against these mortgage pools to underwriters for sale to the public.

Through JPM Acceptance, JPMorgan Chase also exercised actual control over the JPMorgan

Trusts.

          430.      Once the JPMorgan Trusts issued the Certificates, the Certificates were purchased

and resold by the JPMorgan entity JPMS, which acted as the underwriter for the Certificates.

          431.      JPMorgan Chase also participated in creating the Offering Documents. In sum,

JPMorgan Chase maintained a high level of day-to-day scrutiny and control over its subsidiaries,

and controlled the entire process leading to the sale of the Certificates to ABP.

          432.      In its SEC filings, JPMorgan Chase discussed its practice of securitizing loans and

underwriting securitizations by acting through its subsidiaries. For example, JPMorgan Chase’s

10-K Annual Report, filed on March 1, 2007 for the period ending December 31, 2006, states,

inter alia, that:

                    •      “[I]n 2006, the Firm securitized approximately $16.8 billion of residential
                           mortgage loans and $9.7 billion of credit card loans, resulting in pretax
                           gains on securitization of $85 million and $67 million, respectively.”

                    •      “JPMorgan Chase securitizes and sells a variety of its consumer and
                           wholesale loans… JPMorgan Chase-sponsored securitizations utilize
                           [special purpose entities] as part of the securitization process.”

                    •      “The Firm also conducts securities underwriting, dealing and brokerage
                           activities through JPMorgan Securities and other broker-dealer
                           subsidiaries[.]”




                                                    187
                •       “The following table summarizes new securitization transactions that were
                        completed during 2006, 2005 and 2004; the resulting gains arising from
                        such securitizations; certain cash flows received from such securitizations;
                        and the key economic assumptions used in measuring the retained
                        interests, as of the date of such sales.”

        433.    JPMorgan Chase also touted its purported underwriting standards in its SEC

filings, asserting that it followed established policies and procedures to ensure asset quality.

JPMorgan Chase’s 10-K Annual Report, filed on March 1, 2007 for the period ending December

31, 2006, states, inter alia, that:

                As part of the Firm’s loan securitization activities, as described in
                Note 14 on pages 114-118 of this Annual Report, the Firm
                provides representations and warranties that certain securitized
                loans meet specific requirements. The Firm may be required to
                repurchase the loans and/or indemnify the purchaser of the loans
                against losses due to any breaches of such representations or
                warranties. Generally, the maximum amount of future payments
                the Firm would be required to make under such repurchase and/or
                indemnification provisions would be equal to the current amount
                of assets held by such securitization-related SPEs as of December
                31, 2006, plus, in certain circumstances, accrued and unpaid
                interest on such loans and certain expenses. The potential loss due
                to such repurchase and/or indemnity is mitigated by the due
                diligence the Firm performs before the sale to ensure that the
                assets comply with the requirements set forth in the
                representations and warranties. Historically, losses incurred on
                such repurchases and/or indemnifications have been insignificant,
                and therefore management expects the risk of material loss to be
                remote.

        434.    Thus, according to JPMorgan Chase’s own SEC filings, it was responsible for

performing due diligence on the assets included in its subsidiaries’ RMBS offerings.

        435.    JPMorgan Chase culpably participated in the violations of its subsidiaries

discussed above. JPMorgan Chase approved the manner in which it sold the loans it elected to

securitize and controlled the disclosures made in connection with those securitizations. Among

other misconduct, JPMorgan Chase oversaw the actions of its subsidiaries and allowed them,




                                                188
including Defendants JPMM Acquisition, JPM Acceptance, and JPMS, to misrepresent the

mortgage loans’ characteristics in the Offering Documents.

       B.      DEFENDANT JPMM ACQUISITION

       436.    Defendant JPMM Acquisition was in a position to and in fact controlled

Defendant JPM Acceptance.        JPMM Acquisition was one of the entities through which

Defendant JPMorgan controlled the securitization process. JPMM Acquisition acquired the

mortgage loans underlying the Certificates from third party originators and transferred them to

the Depositor Defendant JPM Acceptance for securitization.

       437.    JPMM Acquisition also participated in creating the Offering Documents. In the

Offering Documents, JPMM Acquisition made statements regarding its responsibilities and

controlling role in the securitizations, as well as the track records of prior securitizations for

which it had served as a sponsor. For example, the 424B3 Prospectus for J.P. Morgan Mortgage

Acquisition Trust 2006-RM1, filed on September 20, 2006, states that,

               •      “Unless otherwise specified in the prospectus supplement, J.P. Morgan
                      Mortgage Acquisition Corp. will act as sponsor of the trust fund… A
                      sponsor will organize and initiate a securitization[.]”

               •      “[JPMM Acquisition] has been engaged in the securitization of assets
                      since its incorporation. In connection with these activities, [JPMM
                      Acquisition] uses special purpose entities, such as the depositor,
                      primarily for (but not limited to) the securitization of commercial and
                      residential mortgages and home equity loans.”

               •      “During fiscal years 2004 and 2003, [JPMM Acquisition] securitized
                      approximately $275,299,016 and $ 4,510,234,249 of residential
                      mortgages, respectively. During this period, no securitizations sponsored
                      by [JPMM Acquisition] have defaulted or experienced an early
                      amortization or trigger event.”

               •      “In the normal course of its securitization program, [JPMM Acquisition]
                      acquires loans from third party originators and through its affiliates.
                      Employees of [JPMM Acquisition]              or its affiliates structure
                      securitization transactions in which the loans are sold to the depositor.
                      In consideration for the Assets which [JPMM Acquisition] sells to the


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                      depositor, the depositor issues the securities supported by the cash flows
                      generated by the Assets.”

              •       “Pursuant to the agreement conveying Assets from [JPMM Acquisition]
                      to the depositor, [JPMM Acquisition] may make representations and
                      warranties regarding the Assets.”

       438.   Thus, in its role as a securitization sponsor, JPMM Acquisition had control over

matters including the acquisition of mortgage loans, the selection of mortgage loans to be

transferred into the Issuing Trusts, and the structuring of the securitizations. JPMM Acquisition

oversaw the actions of Defendant JPM Acceptance, and allowed it to misrepresent the mortgage

loans’ characteristics in the Offering Documents.

       C.     JPMORGAN INDIVIDUAL CONTROL PERSON DEFENDANTS

       439.   Defendant Bernard was, at relevant times, a President of Defendant JPM

Acceptance. By virtue of his senior management position, Bernard had the power to control and

influence, and did control and influence, Defendant JPM Acceptance.

       440.   Defendant Cole was, at relevant times, a Director of Defendant JPM Acceptance.

Cole was also, at relevant times, a Managing Director of JPMorgan Chase, and a co-head of

JPMorgan Chase’s securitized products business. By virtue of her senior management positions,

Cole had the power to control and influence, and did control and influence, Defendant JPM

Acceptance.

       441.   Defendant Duzyk was, at relevant times, a President and a Director of Defendant

JPM Acceptance. Duzyk was also, at relevant times, a Managing Director of JPMorgan Chase,

and the head of term asset-backed security and mortgage-backed security origination at

JPMorgan Chase. By virtue of his senior management positions, Duzyk had the power to control

and influence, and did control and influence, Defendant JPM Acceptance.




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       442.    Defendant King was, at relevant times, a Director of Defendant JPM Acceptance.

King was also, at relevant times, a Managing Director of JPMorgan Chase, and a co-head of

JPMorgan Chase’s securitized products business. By virtue of his senior management positions,

King had the power to control and influence, and did control and influence, Defendant JPM

Acceptance.

       443.    Defendant McMichael was, at relevant times, a Director of Defendant JPM

Acceptance. By virtue of his senior management position, McMichael had the power to control

and influence, and did control and influence, Defendant JPM Acceptance.

       444.    Defendant Schioppo, Jr. was, at relevant times, the Controller and Chief Financial

Officer of Defendant JPM Acceptance. Schioppo was also, at relevant times, a Managing

Director of JPMS and Chief Financial Officer of a risk unit within JPMS. By virtue of his senior

management positions, Schioppo had the power to control and influence, and did control and

influence, Defendant JPM Acceptance.

       D.      NON-DEFENDANT BSCI

       445.    Non-Defendant BSCI was in a position to and in fact controlled each of

Defendants EMC, BSABS, SAMI, and Bear Stearns.                   BSCI operated its consolidated

subsidiaries as a collective enterprise, making significant strategic decisions for its subsidiaries,

monitoring enterprise-wide risk, and maximizing profit for BSCI. As discussed in Section

XIII.A, below, JPMorgan Chase is the successor in liability to BSCI.

       446.    Non-Defendant BSCI encouraged and/or allowed its subsidiaries to misrepresent

the mortgage loans’ characteristics in the Registration Statements and establish special-purpose

financial entities such as Defendants BSABS and SAMI, and the Bear Stearns Trusts to serve as

conduits for the mortgage loans.




                                                191
       447.    Unlike arm’s-length securitizations where the loan originator, depositor,

underwriters, and issuers are unrelated third parties, here the transactions among the sponsor

(EMC); the depositor (BSABS or SAMI) and the Bear Stearns Trusts were not arm’s-length

transactions at all, as BSCI controlled every aspect of the securitization processes. Furthermore,

the BSCI-controlled entity Bear Stearns was the underwriter for the securitizations.

       448.    The mortgage loans underlying the Certificates were originated by the Bear

Stearns entities BSRMC and Encore, or by third party originators, and acquired by the sponsor,

EMC. BSCI created BSABS and SAMI to acquire mortgage loans from EMC and to transfer the

loans to the Bear Stearns Trusts for sale to investors as RMBS. As the depositors, BSABS and

SAMI were shell corporations with no assets of their own, and had the same directors and

officers as other Bear Stearns entities. Through these executives, BSCI exercised actual day-to-

day control over BSABS and SAMI. Revenues flowing from the issuance and sale of the

Certificates were passed through to BSCI.

       449.    BSABS and SAMI in turn created the Bear Stearns Trusts. Like the Issuing

Defendants, the Bear Stearns Trusts were shell entities that were established for the sole purpose

of holding the pools of mortgage loans assembled by the Issuing Defendants, and issuing

Certificates collateralized against these mortgage pools to underwriters for sale to the public.

Through BSABS and SAMI, BSCI also exercised actual control over the Bear Stearns Trusts.

       450.    Once the Bear Stearns Trusts issued the Certificates, the Certificates were

purchased and resold by Bear Stearns, which acted as the underwriter for the Certificates.

       451.    BSCI also participated in creating the Offering Documents.          In sum, BSCI

maintained a high level of day-to-day scrutiny and control over its subsidiaries, and controlled

the entire process leading to the sale of the Certificates to ABP.




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        452.   In its SEC filings, BSCI discussed its practice of securitizing loans and

underwriting securitizations by acting through its subsidiaries.     For example, BSCI’s 10-K

Annual Report, filed on January 29, 2008 for the period ending November 30, 2007, states, inter

alia, that:

               •      “The business of the Company includes … engaging in commercial and
                      residential mortgage loan origination and securitization activities[.]”

               •      “The Company purchases and originates commercial and residential
                      mortgage loans through its subsidiaries in the U.S., Europe and Asia. The
                      Company is a leading underwriter or and market-maker in, residential and
                      commercial mortgages, US agency-backed mortgage products, asset-
                      backed securities, collateralized debt obligations and is active in all areas
                      of secured lending, structured finance and securitization products.”

               •      “The Company, in the normal course of business, may establish SPEs
                      [special purpose entities], sell assets to SPEs, underwrite, distribute, and
                      make a market in securities or other beneficial interests issued by SPEs,
                      transact derivatives with SPEs, own securities or other beneficial interests,
                      including residuals, in SPEs, and provide liquidity or other guarantees for
                      SPEs.”

               •      “The Company is a market leader in mortgage-backed securitizations and
                      other structured financing arrangements. In the normal course of business,
                      the Company regularly securitizes commercial and residential mortgages,
                      consumer receivables, and other financial assets.            Securitization
                      transactions are generally treated as sales, provided that control has been
                      relinquished. In connection with securitization transactions, the Company
                      establishes special-purpose entities (“SPEs”) in which transferred assets,
                      including commercial and residential mortgages, consumer receivables
                      and other financial assets are sold to an SPE and repackaged into securities
                      or similar beneficial interests.”

        453.   BSCI also touted its purported underwriting standards in its SEC filings, asserting

that it followed established policies and procedures to ensure asset quality. BSCI’s 10-K Annual

Report, filed on January 29, 2008 for the period ending November 30, 2007, states, inter alia,

that:

               The Company provides representations and warranties to
               counterparties in connection with a variety of commercial
               transactions, including certain asset sales and securitizations and


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               occasionally indemnifies them against potential losses caused by
               the breach of those representations and warranties. To mitigate
               these risks with respect to assets being securitized that have been
               originated by third parties, the Company seeks to obtains
               appropriate representations and warranties from such third-party
               originators upon acquisition of such assets. The Company
               generally performs due diligence on assets purchased and
               maintains underwriting standards for assets originated.

       454.    Thus, according to BSCI’s own SEC filings, it was responsible for performing

due diligence on the assets included in its subsidiaries’ RMBS offerings.

       455.    BSCI culpably participated in the violations of its subsidiaries discussed above.

BSCI approved the manner in which it sold the loans it elected to securitize and controlled the

disclosures made in connection with those securitizations. Among other misconduct, BSCI

oversaw the actions of its subsidiaries and allowed them, including Defendants EMC, BSABS,

SAMI, and Bear Stearns, to misrepresent the mortgage loans’ characteristics in the Offering

Documents.

       E.      DEFENDANT EMC

       456.    Defendant EMC was in a position to and in fact controlled each of Defendants

BSABS and SAMI.         EMC was one of the entities through which Non-Defendant BSCI

controlled the securitization process.    EMC acquired the mortgage loans underlying the

Certificates from third party originators or originated them itself and transferred them to the

Depositor Defendants BSABS and SAMI for securitization.

       457.    EMC also participated in creating the Offering Documents.        In the Offering

Documents, EMC made statements regarding its responsibilities and controlling role in the

securitizations, as well as the number of prior securitizations for which it had served as a

sponsor.    For example, the 424B5 Prospectus Supplement for Bear Stearns Asset Backed

Securities I Trust 2007-HE5, filed on May 30, 2007, states that,



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              •       “The sponsor [EMC] was established as a mortgage banking company to
                      facilitate the purchase and servicing of whole loan portfolios containing
                      various levels of quality[.]”

              •       “Since its inception in 1990, [EMC] has purchased over $100 billion in
                      residential whole loans and servicing rights, which include the purchase of
                      newly originated alternative A, jumbo (prime) and sub-prime loans… .
                      [EMC] is one of the United States’ largest purchasers of scratch and dent,
                      sub-performing and non-performing residential mortgages and REO from
                      various institutions, including banks, mortgage companies, thrifts and the
                      U.S. government. Loans are generally purchased with the ultimate
                      strategy of securitization into an array of Bear Stearns’ securitizations
                      based upon product type and credit parameters, including those where the
                      loan has become re-performing or cash-flowing.”

              •       Performing loans acquired by the sponsor are subject to varying levels of
                      due diligence prior to purchase. Portfolios may be reviewed for credit,
                      data integrity, appraisal valuation, documentation, as well as compliance
                      with certain laws. Performing loans purchased will have been originated
                      pursuant to the sponsor’s underwriting guidelines or the originator’s
                      underwriting guidelines that are acceptable to the sponsor.

              •       The sponsor has been securitizing residential mortgage loans since 1999.
                      The following table describes size, composition and growth of the
                      sponsor’s total portfolio of assets it has securitized as of the dates
                      indicated.

       458.   Thus, in its role as a securitization sponsor, EMC had control over matters

including the acquisition of mortgage loans, the due diligence and underwriting guidelines to be

applied to those loans, and the selection of mortgage loans to be transferred to the Depositor

Defendants and into the Issuing Trusts. EMC oversaw the actions of Defendants BSABS and

SAMI, and allowed them to misrepresent the mortgage loans’ characteristics in the Offering

Documents.

       F.     BEAR STEARNS INDIVIDUAL CONTROL PERSON DEFENDANTS

       459.   Defendant Garniewksi was, at relevant times, an Independent Director of

Defendant BSABS. By virtue of her senior management position, Garniewski had the power to

control and influence, and did control and influence, Defendant BSABS.



                                              195
       460.    Defendant Jurkowski, Jr. was, at relevant times, the Vice President of Defendant

BSABS. By virtue of his senior management positions, Jurkowski had the power to control and

influence, and did control and influence, Defendants BSABS and SAMI.

       461.    Defendant Lutthans was, at relevant times, an Independent Director of Defendant

BSABS. By virtue of her senior management position, Lutthans had the power to control and

influence, and did control and influence, Defendant BSABS.

       462.    Defendant Marano was, at relevant times, a Director of Defendants BSABS and

SAMI. Marano was also, at relevant times, a Senior Managing Director of Bear Stearns, and

head of Bear Stearns’ Mortgage-Backed Securities, Asset-Backed Securities and Commercial

Mortgage-Backed Securities departments. Marano had control over Bear Stearns’ relations with

the rating agencies, and at one point ordered his underlings to suspend fees to the rating agencies

in retaliation for a rating adjustment.     See Section VII, supra.      By virtue of his senior

management positions, Marano had the power to control and influence, and did control and

influence, Defendants BSABS and SAMI.

       463.    Defendant Mayer was, at relevant times, a Director of Defendant SAMI. Mayer

was also, at relevant times, a Senior Managing Director of Bear Stearns and Bear Stearns’ co-

head of Fixed Income. By virtue of his senior management positions, Mayer had the power to

control and influence, and did control and influence, Defendant SAMI.

       464.    Defendant Molinaro was, at relevant times, the Treasurer and a Director of

Defendant BSABS. Molinaro was also, at relevant times, the Chief Financial Officer and a

Senior Managing Director of Bear Stearns. By virtue of his senior management positions,

Molinaro had the power to control and influence, and did control and influence, Defendant

BSABS.




                                               196
       465.    Defendant Nierenberg was, at relevant times, the Treasurer of Defendant SAMI.

Nierenberg was also, at relevant times, a Senior Managing Director of Bear Stearns, and the head

of Bear Stearns’ adjustable rate mortgage and collateralized debt obligation trading desks. By

virtue of his senior management positions, Nierenberg had the power to control and influence,

and did control and influence, Defendant SAMI.

       466.    Defendant Perkins was, at relevant times, the President and a Director of

Defendant BSABS. Perkins was also, at relevant times, a Senior Managing Director of Bear

Stearns, and the co-head of asset-based securities and RMBS banking at Bear Stearns. By virtue

of his senior management positions, Perkins had the power to control and influence, and did

control and influence, Defendant BSABS.

       467.    Defendant Verschleiser was, at relevant times, the President of Defendant SAMI.

Verschleiser was also, at relevant times, a Senior Managing Director of Bear Stearns and the

head of Bear Stearns’ mortgage and asset-backed securities trading desks, with direct control

over matters including securitization and due diligence reviews.         By virtue of his senior

management positions, Verschlesier had the power to control and influence, and did control and

influence, Defendant SAMI.

       G.      DEFENDANT JPMORGAN BANK (AS SUCCESSOR TO WAMU BANK)

       468.    Non-Defendant WaMu Bank was in a position to and in fact controlled each of

Defendants WMMSC, WAAC, LBSC, and WaMu Capital.                       WaMu Bank operated its

consolidated subsidiaries as a collective enterprise, making significant strategic decisions for its

subsidiaries, monitoring enterprise-wide risk, and maximizing profit for WaMu Bank.              As

discussed in Section XIII.B below, Defendant JPMorgan Bank is the successor in liability to

WaMu Bank.




                                                197
       469.    Non-Defendant WaMu Bank encouraged and/or allowed its subsidiaries to

misrepresent the mortgage loans’ characteristics in the Registration Statements and establish

special-purpose financial entities such as Defendants WAAC and LBSC, and the WaMu Trusts

to serve as conduits for the mortgage loans.

       470.    Unlike arm’s-length securitizations where the loan originator, depositor,

underwriters, and issuers are unrelated third parties, here the transactions among the sponsor

(WMMSC); the depositor (WAAC or LBSC) and the WaMu Trusts were not arm’s-length

transactions at all, as WaMu Bank controlled every aspect of the securitization processes.

Furthermore, the WaMu Bank-controlled entity WaMu Capital was the underwriter for the

securitizations.

       471.    The mortgage loans underlying the Certificates were originated by WaMu Bank-

controlled entities or third party originators and acquired by the sponsor, WMMSC. WaMu

Bank created WAAC and LBSC to acquire mortgage loans from WMMSC and to transfer the

loans to the WaMu Trusts for sale to investors as RMBS. As the depositors, WAAC and LBSC

were shell corporations with no assets of their own, and had the same directors and officers as

other WaMu Bank entities. Through these executives, WaMu Bank exercised actual day-to-day

control over WAAC and LBSC. Revenues flowing from the issuance and sale of the Certificates

were passed through to WaMu Bank.

       472.    WAAC and LBSC in turn created the WaMu Trusts.                 Like the Issuing

Defendants, the WaMu Trusts were shell entities that were established for the sole purpose of

holding the pools of mortgage loans assembled by the Issuing Defendants, and issuing

Certificates collateralized against these mortgage pools to underwriters for sale to the public.

Through WAAC and LBSC, WaMu Bank also exercised actual control over the WaMu Trusts.




                                               198
        473.    Once the WaMu Trusts issued the Certificates, the Certificates were purchased

and resold by the WaMu Bank-controlled entity WaMu Capital, which acted as the underwriter

for the Certificates.

        474.    WaMu Bank also participated in creating the Offering Documents.           In sum,

WaMu Bank maintained a high level of day-to-day scrutiny and control over its subsidiaries, and

controlled the entire process leading to the sale of the Certificates to ABP.

        475.    The Levin Report discusses WaMu Bank’s securitization activities and control

over the securitization process at length. It found that “[WaMu Bank and LBMC] securitized

over $77 billion in subprime home loans and billions more in other high risk home loans, used

Wall Street firms to sell the securities to investors worldwide, and polluted the financial system

with mortgage backed securities which later incurred high rates of delinquency and loss… At

times, [WaMu Bank] selected and securitized loans that it had identified as likely to go

delinquent, without disclosing its analysis to investors who bought securities, and also

securitized loans tainted by fraudulent information, without notifying purchasers of the fraud that

was discovered.” Securitization was an integral component of WaMu Bank’s business model,

specifically its High Risk Lending Strategy.

        476.    Specifically regarding Defendants WaMu Capital, WMMSC, and WAAC, the

Levin Report further notes that:

                When [WaMu Bank] began securitizing its loans, it was dependent
                upon investment banks to help underwrite and sell its
                securitizations.    In order to have greater control of the
                securitization process and to keep securitization underwriting fees
                in house, rather than paying them to investment banks, [WaMu
                Bank] acquired a company able to handle securitizations and
                renamed it Washington Mutual Capital Corporation (WCC), which
                became a wholly-owned subsidiary of the bank. WCC was a
                registered broker-dealer and began to act as an underwriter of
                WaMu and Long Beach securitizations. WCC worked with two



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               other bank subsidiaries, [WMMSC] and [WAAC], that provided
               warehousing for WaMu loans before they were securitized. WCC
               helped to assemble RMBS pools and sell the resulting RMBS
               securities to investors. At first it worked with other investment
               banks; later it became the sole underwriter of some WaMu
               securitizations.

       477.    Defendant Beck testified before the PSI in a prepared statement that during the

period when he was the head of capital markets for WaMu Bank, the people who were

responsible for overseeing WMMSC and WAAC reported to him.

       478.    WaMu Bank culpably participated in the violations of its subsidiaries discussed

above. WaMu Bank approved the manner in which it sold the loans it elected to securitize and

controlled the disclosures made in connection with those securitizations.           Among other

misconduct, WaMu Bank oversaw the actions of its subsidiaries and allowed them, including

Defendants WMMSC, WAAC, LBSC, and WaMu Capital, to misrepresent the mortgage loans’

characteristics in the Offering Documents.

       H.      DEFENDANT WMMSC

       479.    Defendant WMMSC was in a position to and in fact controlled each of

Defendants WAAC and LBSC. WMMSC was one of the entities through which Defendant

WaMu Bank controlled the securitization process.        WMMSC acquired the mortgage loans

underlying the Certificates from WaMu Bank-controlled entities or third party originators and

transferred them to the Depositor Defendants WAAC and LBSC for securitization.

       480.    WMMSC also participated in creating the Offering Documents. In the Offering

Documents, WMMSC made statements regarding its responsibilities and controlling role in the

securitizations, the underwriting guidelines of the third party originators that it purchased loans

from, and the number of prior securitizations for which it had served as a sponsor. For example,




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the 424B5 Prospectus Supplement for Washington Mutual Mortgage Pass-Through Certificates,

WMALT Series 2007-OC2, filed on June 26, 2007, states that:

              •      “The sponsor engages in the business of (i) purchasing mortgage loans on
                     a servicing retained and servicing released basis, (ii) selling mortgage
                     loans in whole loan transactions and securitizing mortgage loans through
                     affiliated and unaffiliated depositors, (iii) master servicing mortgage loans,
                     (iv) acting as administrative agent of Washington Mutual Bank and its
                     affiliates with respect to mortgage loans serviced by Washington Mutual
                     Bank and its affiliates and (v) providing securitization services. The
                     sponsor generally acts as master servicer or administrative agent with
                     respect to all mortgage loans securitized by the sponsor.”

              •      “Securitization of mortgage loans is an integral part of the sponsor’s
                     conduit program. It has engaged in securitizations of first lien single-
                     family residential mortgage loans through WaMu Asset Acceptance Corp.,
                     as depositor, since 2005, and has acted as its own depositor from 1979
                     until 2005.”

              •      “The following table shows, for each indicated period, the aggregate
                     principal balance of first and second lien single-family residential
                     mortgage loans purchased by the sponsor during that period (except
                     mortgage loans purchased in its capacity as depositor from an affiliated
                     sponsor) and the portion of those mortgage loans securitized during that
                     period in securitization transactions for which it or WaMu Asset
                     Acceptance Corp. acted as depositor.”

              •      “In initially approving a mortgage loan seller, the sponsor takes into
                     account the following: annual origination volume, tenure of business and
                     key staff in originating loans, policies and procedures for originating loans
                     including quality control and appraisal review, review audits performed on
                     mortgage loan seller by rating agencies, regulatory agencies and
                     government sponsored entities, the mortgage loan seller’s financial
                     statements, errors and omissions insurance coverage and fidelity bond and
                     liability insurance coverage. Approved mortgage loan sellers’ financial
                     statements, insurance coverage and new review audits are reviewed on an
                     annual basis. Additionally, the sponsor performs a monthly ongoing
                     performance review of previously purchased mortgage loans for trends in
                     delinquencies, losses and repurchases. The mortgage loan sellers’
                     underwriting guidelines are reviewed for consistency with the sponsor’s
                     credit parameters and conformity with the underwriting standards
                     described under “Underwriting of the Mortgage Loans” below and are
                     either approved or approved with exceptions. The mortgage loan sellers
                     represent to the sponsor upon sale that the mortgage loans have been
                     underwritten in accordance with the approved underwriting guidelines.”



                                              201
              •       “All of the mortgage loans owned by the Trust have been originated in
                      accordance with the underwriting standards of the sponsor or the
                      underwriting guidelines of Washington Mutual Bank as described in this
                      section.”

       481.   Thus, in its role as a securitization sponsor, WMMSC had control over matters

including the acquisition of mortgage loans and the approval of third party originators, the

underwriting standards applied to the mortgages, the selection of mortgage loans to be

transferred into the Issuing Trusts, and the structuring of the securitizations. WMMSC oversaw

the actions of Defendants WAAC and LBSC, and allowed them to misrepresent the mortgage

loans’ characteristics in the Offering Documents.

       I.     WAMU INDIVIDUAL CONTROL PERSON DEFENDANTS

       482.   Defendant Beck was, at relevant times, the President and a Director of Defendant

WAAC. Beck was also, at relevant times, the head of WaMu Bank’s capital markets division.

In testimony before the PSI, Beck stated that, during the time he was head of capital markets for

WaMu Bank, he had authority over the officers responsible for overseeing the WaMu entities

that purchased and held loans that were to be sold into the secondary market, including WAAC

and WMMSC. By virtue of his senior management positions, Beck had the power to control and

influence, and did control and influence, Defendants WAAC and WMMSC.

       483.   Defendant Careaga was, at relevant times, the Vice President of Defendant

WAAC. Careaga was also, at relevant times, Senior Vice President and Associate General

Counsel for WaMu Bank, where he was the principal in-house counsel responsible for asset

backed securities and secondary mortgage market transactions, securities underwriting and

related home loan servicing matters. By virtue of his senior management positions, Careaga had

the power to control and influence, and did control and influence, Defendant WAAC.




                                              202
       484.   Defendant Casey was, at relevant times, a Director of Defendant LBSC. Casey

was also, at relevant times, the Chief Financial Officer of WMI.      By virtue of his senior

management positions, Casey had the power to control and influence, and did control and

influence, Defendant LBSC.

       485.   Defendant Fortunato was, at relevant times, the Chief Financial Officer of

Defendants LBSC and WAAC. Fortunato was also, at relevant times, the Chief Financial

Officer of the Home Loans Group at WMI or WaMu Bank, and the Senior Vice President for

Finance and Risk Management at WMI or WaMu Bank. By virtue of his senior management

positions, Fortunato had the power to control and influence, and did control and influence,

Defendants LBSC and WAAC.

       486.   Defendant Giampaolo was, at relevant times, the Principal Executive Officer of

Defendant LBSC. Giampaolo was also, at relevant times, the Chief Operating Officer of Long

Beach Mortgage Company and the Channel Director for Nonprime Wholesale Lending at Long

Beach Mortgage Company. By virtue of his senior management positions, Giampaolo had the

power to control and influence, and did control and influence, Defendant LBSC.

       487.   Defendant Green was, at relevant times, Chief Financial Officer of Defendant

WAAC.     Green was also, at relevant times, a Director of Real Estate Owned Subprime

Operations at WMI or WaMu Bank By virtue of his senior management positions, Beck had the

power to control and influence, and did control and influence, Defendant WAAC.

       488.   Defendant Jurgens was, at relevant times, Principal Accounting Officer of

Defendants LBSC and WAAC. Jurgens was also, at relevant times, a Senior Vice President and

Capital Markets Controller of WMI or WaMu Bank, where he was responsible for matters

including capital markets accounting and loan sale and securitization accounting. By virtue of




                                             203
his senior management positions, Jurgens had the power to control and influence, and did control

and influence, Defendants LBSC and WAAC.

       489.   Defendant Lehmann was, at relevant times, the President and a Director of

Defendant WAAC.       Lehmann was also a Senior Vice President of WMI or WaMu Bank

responsible for matters including loan operations, capital markets compliance, and transaction

management. By virtue of his senior management positions, Lehmann had the power to control

and influence, and did control and influence, Defendant WAAC.

       490.   Defendant Novak was, at relevant times, a Director of Defendant WAAC. Novak

was also, at relevant times, a Senior Vice President and Senior Compliance Officer of WMI or

WaMu Bank, and a member of the WMI or WaMu Bank Market Risk Committee. By virtue of

her senior management positions, Novak had the power to control and influence, and did control

and influence, Defendant WAAC.

       491.   Defendant Robinson was, at relevant times, a Director of Defendant LBSC.

Robinson was also, at relevant times, an Executive Vice President of corporate risk management

and a Vice President of Regulatory Relations for WMI. By virtue of his senior management

positions, Robinson had the power to control and influence, and did control and influence,

Defendant LBSC.

       492.   Defendant Wilhelm was, at relevant times, Principal Accounting Officer of

Defendant WAAC. By virtue of his senior management position, Wilhelm had the power to

control and influence, and did control and influence, Defendant WAAC.

       493.   Defendant Zielke was, at relevant times First Vice President and Assistant

General Counsel for Capital Markets of WaMu Bank. By virtue of his senior management




                                              204
positions, Zielke had the power to control and influence, and did control and influence,

Defendant WAAC.

XIII. PLAINTIFF ABP RELIED ON DEFENDANTS’ MISREPRESENTATIONS TO
      ITS DETRIMENT

       494.    ABP through its agents purchased senior classes of mortgage-backed securities

(i.e., those rated AAA/Aaa by the rating agencies Standard & Poor’s and Moody’s Investors

Service). The Certificates were purchased to generate income and total return through safe

investments. The securities were purchased with the expectation that the investments could be—

and indeed some would be and were—purchased and sold on the secondary market.

       495.    In making the investments, ABP and/or its agents relied upon Defendants’

representations and assurances regarding the quality of the mortgage collateral underlying the

Certificates, including the quality of the underwriting processes related to the underlying

mortgage loans.    ABP and/or its agents received, reviewed, and relied upon the Offering

Documents, which described in detail the mortgage loans underlying each offering. Offering

Documents containing the representations outlined above (or nearly identical, materially similar

counterparts thereto) were obtained, reviewed, and relied upon before any purchase was made.

       496.    In purchasing the Certificates, ABP and/or its agents justifiably relied on

Defendants’ false representations and omissions of material fact detailed above, including the

misstatements and omissions in the Offering Documents.          These representations materially

altered the total mix of information upon which ABP and/or its agents made its purchasing

decisions.

       497.    But for the misrepresentations and omissions in the Offering Documents, ABP

and its agents would not have purchased or acquired the Certificates as it ultimately did, because




                                               205
those representations and omissions were material to its decision to acquire the Certificates, as

described above.

       498.    As discussed supra, Plaintiff is a conservative institutional investor that relied on

Defendants’ representations in the Offering Documents that the Certificates purchased by

Plaintiff were safe, AAA-rated securities. Because ABP did not have access to the loan files,

appraisals or other supporting documentation for the loans underlying the Certificates, ABP had

no reasonable means or ability to conduct its own due diligence regarding the quality of the

mortgage pool. As such, ABP and its agents were forced to and did rely on the representations

made by Defendants in the Offering Documents, and it was because of those representations that

Plaintiff purchased the Certificates at issue in this Complaint.

XIV. PLAINTIFF HAS SUFFERED LOSSES AS A RESULT OF ITS PURCHASES OF
     THE CERTIFICATES

       499.    The false and misleading statements of material facts and omissions of material

facts in the Offering Documents directly caused Plaintiff damage, because the Certificates were

in fact far riskier than Defendants had described them to be. As set forth below, the loans

underlying the Certificates experienced default and delinquency at very high rates due to

Defendants’ abandonment of their purported underwriting guidelines. The resulting downgrades

to the Certificates ratings made them unmarketable at anywhere near the prices Plaintiff paid,

causing losses to Plaintiff when those Certificates were sold.

       500.    Plaintiff purchased Certificates issued by JPMAC 2006-HE3 on November 10,

2006, in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Ca. At the time of filing of this complaint, the

Certificates were trading at just approximately 65% of par.




                                                206
       501.    Plaintiff purchased Certificates issued by JPMAC 2006-RM1 on September 27,

2006, in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Ca. At the time of filing of this complaint, the

Certificates were trading at just approximately 28% of par.

       502.    Plaintiff purchased Certificates issued by JPMAC 2006-WMC4, Tranche A2 on

December 20, 2006, in the offering, when they were rated Aaa by Moody’s, but the Certificates

have since been downgraded three times and are currently rated Ca. At the time of filing of this

complaint, the Certificates were trading at just approximately 31% of par.

       503.    Plaintiff purchased Certificates issued by JPMAC 2006-WMC4, Tranche A3 on

December 20, 2006, in the offering, when they were rated Aaa by Moody’s, but the Certificates

have since been downgraded three times and are currently rated Ca. At the time of filing of this

complaint, the Certificates were trading at just approximately 31% of par.

       504.    Plaintiff purchased Certificates issued by JPMAC 2007-CH3, Tranche A2 on

May 15, 2007, in the offering, when they were rated Aaa by Moody’s, but the Certificates have

since been downgraded twice and are currently rated Ba2. At the time of filing of this complaint,

the Certificates were trading at just approximately 95% of par.

       505.    Plaintiff purchased Certificates issued by JPMAC 2007-CH3, Tranche A3 on May

15, 2007, in the offering, when they were rated Aaa by Moody’s, but the Certificates have since

been downgraded three times and are currently rated Caa1.         At the time of filing of this

complaint, the Certificates were trading at just approximately 71% of par.

       506.    Plaintiff purchased Certificates issued by JPMAC 2007-CH4 on June 15, 2007, in

the offering, when they were rated Aaa by Moody’s, but the Certificates have since been




                                               207
downgraded twice and are currently rated Ba2. At the time of filing of this complaint, the

Certificates were trading at just approximately 94% of par.

       507.    Plaintiff purchased Certificates issued by BSABS 2007-HE1 on January 30, 2007,

in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded once and are currently rated Ba1. At the time of filing of this complaint, the

Certificates were trading at just approximately 95% of par.

       508.    Plaintiff purchased Certificates issued by BSABS 2007-HE2 on February 28,

2007, in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded twice and are currently rated Baa3. At the time of filing of this complaint, the

Certificates were trading at just approximately 99% of par.

       509.    Plaintiff purchased Certificates issued by BSABS 2007-HE3, Tranche 1A1 on

March 30, 2007, in the offering, when they were rated Aaa by Moody’s, but the Certificates have

since been downgraded three times and are currently rated Ba3. At the time of filing of this

complaint, the Certificates were trading at just approximately 96% of par.

       510.    Plaintiff purchased Certificates issued by BSABS 2007-HE3, Tranche 1A2 on

March 30, 2007, in the offering, when they were rated Aaa by Moody’s, but the Certificates have

since been downgraded three times and are currently rated Caa2. At the time of filing of this

complaint, the Certificates were trading at just approximately 59% of par.

       511.    Plaintiff purchased Certificates issued by BSABS 2007-HE4 on April 30, 2007, in

the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Caa1. At the time of filing of this complaint, the

Certificates were trading at just approximately 94% of par.




                                               208
       512.    Plaintiff purchased Certificates issued by BSABS 2006-HE7 on August 30, 2006,

in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded once and are currently rated Ba2. At the time of filing of this complaint, the

Certificates were trading at just approximately 97% of par.

       513.    Plaintiff purchased Certificates issued by BALTA 2004-6, when they were rated

Aaa by Moody’s, but the Certificates have since been downgraded twice and are currently rated

Baa2. At the time of filing of this complaint, the Certificates were trading at just approximately

56% of par.

       514.    Plaintiff purchased Certificates issued by BSABS 2007-2 on May 14, 2007, in the

offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded once and are currently rated A1. At the time of filing of this complaint, the

Certificates were trading at just approximately 94% of par.

       515.    Plaintiff purchased Certificates issued by BSABS 2007-HE5 on May 30, 2007, in

the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Caa1. At the time of filing of this complaint, the

Certificates were trading at just approximately 67% of par.

       516.    Plaintiff purchased Certificates issued by BSABS 2006-HE9 on November 29,

2006, in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded once and are currently rated Baa2. At the time of filing of this complaint, the

Certificates were trading at just approximately 97% of par.

       517.    Plaintiff purchased Certificates issued by SACO 2005-5 when they were rated

Aaa by Moody’s, but the Certificates have since been downgraded once and are currently rated




                                               209
B2. At the time of filing of this complaint, the Certificates were trading at just approximately

98% of par.

       518.    Plaintiff purchased Certificates issued by WMHE 2007-HE1 on January 16, 2007,

in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded twice and are currently rated Ca. At the time of filing of this complaint, the

Certificates were trading at just approximately 41% of par.

       519.    Plaintiff purchased Certificates issued by WMHE 2007-HE2 on April 10, 2007, in

the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Caa2. At the time of filing of this complaint, the

Certificates were trading at just approximately 76% of par.

       520.    Plaintiff purchased Certificates issued by WMALT 2006-AR10 on December 28,

2006, in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Caa3. At the time of filing of this complaint, the

Certificates were trading at just approximately 46% of par.

       521.    Plaintiff purchased Certificates issued by WMALT 2007-HY1 on January 30,

2007, in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Caa3. At the time of filing of this complaint, the

Certificates were trading at just approximately 54 % of par.

       522.    Plaintiff purchased Certificates issued by WMALT 2007-OC2 on June 27, 2007,

in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Caa3. At the time of filing of this complaint, the

Certificates were trading at just approximately 46% of par.




                                               210
       523.    Plaintiff purchased Certificates issued by WMABS 2007-HE2 on March 13, 2007

in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Ca. At the time of filing of this complaint, the

Certificates were trading at just approximately 30% of par.

       524.    Plaintiff purchased Certificates issued by LBMLT 2006-6 on July 26, 2006, in the

offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded twice and are currently rated Caa3. At the time of filing of this complaint, the

Certificates were trading at just approximately 33% of par.

       525.    Plaintiff purchased Certificates issued by LBMLT 2006-9 on October 12, 2006, in

the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded three times and are currently rated Ca. At the time of filing of this complaint, the

Certificates were trading at just approximately 29% of par.

       526.    Plaintiff purchased Certificates issued by LBMLT 2006-10 on November 9, 2006,

in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded twice and are currently rated Ca. At the time of filing of this complaint, the

Certificates were trading at just approximately 31% of par.

       527.    Plaintiff purchased Certificates issued by LBMLT 2006-11 on December 14,

2006, in the offering, when they were rated Aaa by Moody’s, but the Certificates have since been

downgraded twice and are currently rated Ca. At the time of filing of this complaint, the

Certificates were trading at just approximately 33% of par.

       528.    As a result of the multiple and material misrepresentations contained in the

Offering Documents, Plaintiff has suffered losses on its purchases of Certificates. As of the

filing of this Complaint, the mortgage loans in the pools held by the Issuing Trusts and




                                               211
underlying Plaintiff’s Certificates have suffered escalating default rates and mounting

foreclosures, resulting in across-the-board ratings downgrades and other negative actions by the

rating agencies, as described in the table below.

                                                      Percentage of
                                   Percentage of
                                                          Loans
                                      Loans
                                                       Underlying
                                    Underlying                        Moody’s       Current
  Certificates Purchased by                                the
                                        the                           Ratings at    Moody’s
             ABP                                       Certificates
                                    Certificates                      Purchase      Ratings
                                                       Delinquent
                                         in
                                                      by More than
                                    Foreclosure
                                                         90 Days
BSABS 2007-HE1                       30.26                54.21          Aaa          Ba1
BSABS 2007-HE2                       33.70               56.45           Aaa          Baa3
BSABS 2007-HE3                       30.47               51.81           Aaa          Ba3
BSABS 2007-HE4                       16.79               34.19           Aaa          Caa1
BSABS 2006-HE7                       33.08               50.35           Aaa          Ba2
BALTA 2004-6                         10.14               19.31           Aaa          Baa2
BSABS 2007-2                         36.13               54.78           Aaa           A1
BSABS 2007-HE3                       30.47               51.81           Aaa          Caa2
BSABS 2007-HE5                       27.03               47.02           Aaa          Caa1
BSABS 2006-HE9                       35.58               59.09           Aaa          Baa2
SACO 2005-5                            0.47              10.69           Aaa           B2
JPMAC 2006-HE3                       27.92               43.50           Aaa           Ca
JPMAC 2006-RM1                       25.89               43.66           Aaa           Ca
JPMAC 2006-WMC4 A2/A2                35.29               50.28           Aaa         Ca/Ca
JPMAC 2007-CH3 A2/A3                 32.31               42.36           Aaa        Ba2/Caa1
JPMAC 2007-CH4                       30.48               40.63           Aaa          Ba2
WMHE 2007-HE1                        24.14               45.95           Aaa           Ca
WMHE 2007-HE2                        24.72               48.07           Aaa          Caa2
WMALT 2006-AR10                      19.96               29.10           Aaa          Caa3
WMALT 2007-HY1                       18.76               31.77           Aaa          Caa3
WMALT 2007-OC2                       23.30               38.83           Aaa          Caa3
WMABS 2007-HE2                       38.11               52.86           Aaa           Ca
LBMLT 2006-10                        26.73               52.32           Aaa           Ca
LBMLT 2006-11                        21.12               42.86           Aaa           Ca



                                                212
                                                    Percentage of
                                  Percentage of
                                                        Loans
                                     Loans
                                                     Underlying
                                   Underlying                       Moody’s      Current
  Certificates Purchased by                              the
                                       the                          Ratings at   Moody’s
             ABP                                     Certificates
                                   Certificates                     Purchase     Ratings
                                                     Delinquent
                                        in
                                                    by More than
                                   Foreclosure
                                                       90 Days
LBMLT 2006-6                        30.35               54.11          Aaa        Caa3
LBMLT 2006-9                        23.75               48.08          Aaa         Ca

XV.    JPMORGAN CHASE AND JPMORGAN BANK’S LIABILITY AS
       SUCCESSORS-IN-INTEREST

       A.      JPMORGAN IS LIABLE AS SUCCESSOR-IN-INTEREST TO THE BEAR STEARNS
               ENTITIES

       529.    In addition to ABP’s claims based on JPMorgan’s own offers or sales of

Certificates to ABP, ABP also brings claims against JPMorgan as successor-in-interest to the

Bear Stearns entities.

       530.     On March 16, 2008, BSCI entered into an Agreement and Plan of Merger with

JPMorgan Chase for the purpose of consummating a “strategic business combination

transaction” between the two entities (the “Merger”).

       531.    Pursuant to the Merger, BSCI merged with Bear Stearns Merger Corporation, a

wholly-owned subsidiary of JPMorgan Chase, making BSCI a wholly-owned subsidiary of

JPMorgan Chase. As such, upon the May 30, 2008 effective date of the Merger, JPMorgan

Chase became the ultimate corporate parent of BSCI’s subsidiaries Bear Stearns, EMC, SAMI

and BSABS.

       532.    According to an April 6, 2008 NEW YORK TIMES article, “JPMorgan dominates

management after Bear Stearns merger,” JPMorgan took immediate control of Bear Stearns’

business and personnel decisions. Citing an internal JPMorgan memo, the article states that

“JPMorgan Chase, which is taking over the rival investment bank Bear Stearns, will dominate


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the management ranks of the combined investment banking and trading businesses… Of 26

executives named to executive positions in the [newly merged] investment banking and trading

division … only five are from Bear Stearns.”

        533.    In a June 30, 2008 press release describing internal restructuring to be undertaken

pursuant to the Merger, JPMorgan stated its intent to assume Bear Stearns and its debts,

liabilities, and obligations as follows:

                Following completion of this transaction, Bear Stearns plans to
                transfer its broker-dealer subsidiary Bear, Stearns & Co. Inc. to
                JPMorgan Chase, resulting in a transfer of substantially all of Bear
                Stearns’ assets to JPMorgan Chase. In connection with such
                transfer, JPMorgan Chase will assume (1) all of Bear Stearns’
                then-outstanding registered U.S. debt securities; (2) Bear Stearns’
                obligations relating to trust preferred securities; (3) Bear Stearns’
                then outstanding foreign debt securities; and (4) Bear Stearns’
                guarantees of then-outstanding foreign debt securities issued by
                subsidiaries of Bear Stearns, in each case, in accordance with the
                agreements and indentures governing these securities.

        534.    According to JPMorgan’s 2008 Annual Report, the transaction was a merger: “On

October 1, 2008, J.P. Morgan Securities Inc. merged with and into Bear, Stearns & Co. Inc., and

the surviving entity changed its name to J.P. Morgan Securities Inc.”

        535.    Bear Stearns’ former website, www.bearstearns.com, now redirects to the JPMS

website, and the EMC website, www.emcmortgagecorp.com, now identifies EMC as a brand of

JPMorgan Bank.

        536.    JPMS was fully aware of the pending claims and potential claims against Bear

Stearns when it consummated the merger and took steps to expressly and impliedly assume Bear

Stearns’ liabilities, for example by paying to defend and settle lawsuits brought against Bear

Stearns.

        537.    As a result of BSCI’s acquisition, JPMorgan Chase’s “transfer of substantially all

of Bear Stearns’ assets to JPMorgan Chase,” and explicit assumption of Bear Stearns’ debt,


                                                214
JPMorgan Chase is the successor-in-interest to BSCI and is jointly and severally liable for the

misstatements and omissions of material fact alleged herein of BSCI.

       538.    As a result of its merger with Bear Stearns, JPMS is the successor-in-interest to

Bear Stearns and is jointly and severally liable for the misstatements and omissions of material

fact alleged herein of Bear Stearns.

       539.    Therefore, this action is brought against JPMorgan Chase as the successor to

BSCI and JPMS as successor to Bear Stearns. BSCI is not a defendant in this action.

       B.      JPMORGAN IS LIABLE AS SUCCESSOR-IN-INTEREST TO THE WAMU AND LONG
               BEACH ENTITIES

       540.    In addition to ABP’s claims based on JPMorgan’s own offers or sales of

Securities to ABP, ABP also brings claims against JPMorgan as successor-in-interest to WaMu

and Long Beach.

       541.    The Office of Thrift Supervision closed WaMu Bank on September 25, 2008, and

named the FDIC as receiver. Shortly thereafter, the FDIC and JPMorgan Bank entered into a

Purchase and Assumption Agreement (the “PAA”) for JPMorgan Bank to “purchase

substantially all of the assets and assume all deposit and substantially all other liabilities of”

WaMu Bank, including Long Beach Mortgage and Long Beach Securities.

       542.    The PAA described the assets purchased by JPMorgan Bank as:

               3.1 Assets Purchased by Assuming Bank. Subject to Sections
               3.5, 3.6 and 4.8, the Assuming Bank hereby purchases from the
               Receiver, and the Receiver hereby sells, assigns, transfers,
               conveys, and delivers to the Assuming Bank, all right, title, and
               interest of the Receiver in and to all of the assets (real, personal
               and mixed, wherever located and however acquired) including all
               subsidiaries, joint ventures, partnerships, and any and all other
               business combinations or arrangements, whether active, inactive,
               dissolved or terminated, of the Failed Bank whether or not
               reflected on the books of the Failed Bank as of Bank Closing.
               Assets are purchased hereunder by the Assuming Bank subject to
               all liabilities for indebtedness collateralized by Liens affecting


                                               215
              such Assets to the extent provided in Section 2.1. The subsidiaries,
              joint ventures, partnerships, and any and all other business
              combinations or arrangements, whether active, inactive, dissolved
              or terminated being purchased by the Assuming Bank includes, but
              is not limited to, the entities listed on Schedule 3.1a.
              Notwithstanding Section 4.8, the Assuming Bank specifically
              purchases all mortgage servicing rights and obligations of the
              Failed Bank.

PAA § 3.1.

       543.   Pursuant to the PAA, JPMorgan Bank purchased “all subsidiaries” of WaMu

Bank, including WaMu Capital, WaMu Acceptance, WaMu Securities, and Long Beach

Securities. As such, WaMu Capital, WaMu Acceptance, WaMu Securities, and Long Beach

Securities became wholly-owned subsidiaries of JPMorgan Bank.

       544.   JPMorgan Bank also assumed nearly all the liabilities of WaMu Bank:

              2.1 Liabilities Assumed by Assuming Bank. Subject to Sections
              2.5 [Borrower Claims] and 4.8 [Agreement with Respect to Certain
              Existing Agreements], the Assuming Bank expressly assumes at
              Book Value (subject to adjustment pursuant to Article VIII) and
              agrees to pay, perform, and discharge, all of the liabilities of the
              Failed Bank which are reflected on the Books and Records of the
              Failed Bank as of Bank Closing, including the Assumed Deposits
              and all liabilities associated with any and all employee benefit
              plans, except as listed on the attached Schedule 2.1, and as
              otherwise provided in this Agreement (such liabilities referred to
              as “Liabilities Assumed”). Notwithstanding Section 4.8, the
              Assuming Bank specifically assumes all mortgage servicing rights
              and obligations of the Failed Bank.

PAA § 2.1.

       545.   JPMorgan Bank thus assumed all liabilities relating to the WaMu Securitizations,

as the WaMu Securitizations were “reflected on the Books and Records” of WaMu Bank as of

the date of its closing, and were not expressly disclaimed by JPMorgan Bank in the PAA.

       546.   The FDIC itself asserts that JPMorgan Bank assumed the liabilities associated

with the securitization activities of WaMu Bank. In a Reply Memorandum filed on February 11,



                                              216
2011, in Deutsche Bank Nat’l Trust Co. v. FDIC (as receiver for WaMu Bank) and JPMorgan

Chase Bank, N.A., No. 09-1656 RMC (D.D.C.), concerning whether WaMu Bank or the FDIC

retained the trust-related liabilities for WaMu Bank’s securitization activities, the FDIC asserted

that “the liabilities and obligations at issue were assumed in their entirety by [JPMorgan Bank]

under the P&A Agreement, thereby extinguishing any potential liability by FDIC Receiver.”

       547.    The FDIC also stated, in a November 22, 2010 filing, that “FDIC Receiver’s

exercise of the transfer provision in this case is consistent with the general principle that when an

entity purchases the assets of an ongoing business and expressly or impliedly assumes the related

liabilities, the acquiring entity succeeds to the pre-sale debts and obligations of the business,

thereby extinguishing the liability of the seller.” Moreover, “[i]n connection with that purchase,

FDIC Receiver transferred to [JPMorgan Bank], and [JPMorgan Bank] expressly agreed to

‘assume’ and to ‘pay, perform and discharge,’ substantially all of [WaMu Bank’s] liabilities.”

Id. (citing PAA § 2.1).

       548.    The Final Report of the Examiner (“Examiner’s Report”), submitted by the court-

appointed Examiner on November 1, 2010 during Washington Mutual, Inc.’s bankruptcy, further

supports FHFA’s and the FDIC’s assertion that all liabilities associated with the WaMu

Securitizations were transferred to JPMorgan Bank as a result of the PAA. In re Washington

Mutual, Inc., No. 08-12229 MFW (Bankr. D. Del. Nov. 1, 2010) (filed publicly with exhibits on

Nov. 22, 2010).

       549.    Per the exhibits to the Examiner’s Report, the FDIC offered five different

transaction structures to prospective bidders for the assets of WaMu Bank. JPMorgan Bank

elected to bid on what was described as “Transaction #3”:

               C. Transaction #3 Whole Bank, All Deposits. Under this
               transaction, the Purchase and Assumption (Whole Bank), the



                                                217
               Potential Acquirer whose Bid is accepted by the Corporation
               assumes the Assumed Deposits of the Bank and all other liabilities
               but specifically excluding the preferred stock, non-asset related
               defensive litigation, subordinated debt and senior debt, and
               purchases all of the assets of the Bank, excluding those assets
               identified as excluded assets in the Legal Documents and subject to
               the provisions thereof.

Exam. Report Ex. JPMCD 000001550.00009 (Instructions for Potential Acquirers);

JPMCD_000002773.0001 (JPMorgan Bank Bid Form). This is in contrast with Transactions #4

and #5, which offered JPMorgan Bank the option of assuming “only certain other liabilities.”

Exam. Report Ex. JPMCD 000001550.00009.

       550.    Additionally, during the drafting process, the FDIC posted a “FAQ” for potential

acquirers with respect to the WaMu Bank transaction. The FDIC’s unequivocal position was

that the mortgage securitization obligations passed to the acquirer:

               9. Are the off-balance sheet credit card portfolio and mortgage
               securitizations included in the transaction? Do you expect the
               acquirer to assume the servicing obligations? If there are pricing
               issues associated with the contracts (e.g., the pricing is
               disadvantageous to the assuming institution), can we take
               advantage of the FDIC’s repudiation powers to effect a repricing?

               Answer: The bank’s interests and obligations associated with the
               off-balance sheet credit card portfolio and mortgage securitizations
               pass to the acquirer. Only contracts and obligations remaining in
               the receivership are subject to repudiation powers.

Examiner’s Report Ex. JPMCD 000001550.00212 – JPMCD 000001550.00213.

       551.     In fact, JPMorgan Bank knew and expressed concern that the PAA and Section

2.1, as drafted, included the transfer of liabilities relating to the WaMu securitizations from

WaMu Bank to JPMorgan Bank. On September 23, 2008, JPMorgan Bank wrote in an e-mail to

the FDIC:

               Let’s say there is a contract between the thrift and the Parent and
               that is included in the Books and Records (not something like
               “accrued for on the books of the Failed Bank,” which probably


                                                218
               would fix the problem) of the thrift at the time of closing. Any
               liability under that contract is then arguably a liability reflected in
               the Books and Records. Therefore one would most likely conclude
               that liabilities under that contract are assumed under 2.1 … So the
               way that [indemnification provision] 12.1 reads is we are
               indemnified for a claim by Wamu (shareholder of Failed Bank)
               with respect to that contract only to the extent the liability was not
               assumed -- indeed they are free to sue us for a breach by the Failed
               Bank that occurred before the closing. In a normal P&A between
               commercial parties this is not something a buyer would ever
               assume and it really doesn’t make sense (nor frankly is it fair) here.

Examiner’s Report Ex. JPM_EX00034958, e-mail from Dan Cooney of JPMorgan Bank to

David Gearin of the FDIC. The language at issue was not altered, despite JPMorgan Bank’s

protests.

        552.   The above-quoted passage—”indeed they are free to sue us for a breach by the

Failed Bank that occurred before the closing”—also demonstrates that, under the language of the

PAA, JPMorgan Bank knew that it would be the appropriate successor for all liabilities and

obligations not disclaimed in the PAA. Id.

        553.   Further, JPMorgan Chase’s SEC filings following its purchase and assumption of

WaMu Bank accounted for the additional liability associated with the WaMu Securitizations.

For instance, in a Prospectus Supplement filed on December 12, 2009, JPMorgan Chase cautions

that “repurchase and/or indemnity obligations arising in connection with the sale and

securitization of loans … by us and certain of our subsidiaries, as well as entities acquired by us

as part of the Bear Stearns, Washington Mutual and other transactions, could materially increase

our costs and lower our profitability, and could materially and adversely impact our results of

operations and financial condition.”

        554.   JPMorgan Bank was fully aware of the pending claims and potential claims

against WaMu Bank when it purchased and assumed WaMu Bank’s assets and liabilities.




                                                219
JPMorgan Bank has further evinced its intent to assume WaMu Banks’ liabilities by paying to

defend and settle lawsuits brought against WaMu Bank and its subsidiaries.

       555.    Moreover, the former WaMu Bank website, www.wamu.com, redirects visitors to

a JPMorgan Chase website proposing that visitors “update [their] favorites” to include

www.chase.com.

       556.    Similarly, the former WaMu Securities website, www.wamusecurities.com,

redirects visitors to a JPMorgan Chase-branded website with the text “Washington Mutual

Mortgage Securities Corp. (WMMSC), a wholly owned subsidiary of JPMorgan Chase Bank,

National Association.”

       557.    As a result of the purchase and assumption of “substantially all of the assets and

... all deposit and substantially all other liabilities of” WaMu Bank, JPMorgan Bank is the

successor-in-interest to WaMu Bank and is jointly and severally liable for the misstatements and

omissions of material fact alleged herein of WaMu Bank.

       558.    Therefore, this action is brought against JPMorgan Bank as the successor to

WaMu Bank. WaMu Bank is not a defendant in this action.

XVI. TOLLING OF THE SECURITIES ACT OF 1933 CLAIMS

       559.    The statutory claims raised by Plaintiff herein are currently the subject of class

action lawsuits. ABP is a putative class member of four class action lawsuits (the “Class

Actions”) for its purchases of Certificates from the following trusts:

               JPMAC 2006-HE3; JPMAC 2006-RM1; JPMAC 2006-WMC4;
               JPMAC 2007-CH3; JPMAC 2007-CH4; BSABS 2007-HE3;
               BSABS 2007-HE4; BSABS 2007-HE5 and WMALT 2007-OC2




                                                220
       A.      THE JP MORGAN CLASS ACTIONS

               1.      Plumbers’ & Pipefitters

       560.     On March 26, 2008, a class action was filed against several JP Morgan entities

and certain former JP Morgan officers and directors on behalf of a class of investors who

purchased or otherwise acquired specific certificates that JP Morgan issued, underwrote or sold.

See Plumbers’ & Pipefitters’ Local #562 Supplemental Plan & Trust. v. J.P. Morgan Acceptance

Corp. I, Case No. 5765/08 (Sup. Ct Nassau Co. 2008) (the “Plumbers’ Class Action”). The case

was later consolidated and removed to the United States District Court for the Eastern District of

New York and assigned case number 2:08-cv-01713-ERK-GRB (E.D.N.Y.). The Plumbers’

Class Action complaint alleges claims under Sections 11, 12(a)(2) and 15 of the Securities Act.

       561.    Plaintiff ABP was included in the defined class in the Plumbers’ Class Action

with respect to its investments in: JPMAC 2006-HE3, JPMAC 2006-RM1, and JPMAC 2006-

WMC4.

       562.    Defendants JPMS, JPMM Acquisition, Cole, Duzyk, McMichael and Schioppo in

this Complaint are also defendants in the Plumbers’ Class Action, for the same statutory causes

of action asserted herein.

               2.      The Fort Worth Class Action

       563.    On March 12, 2009, a class action was filed against several JP Morgan entities

and certain former JP Morgan officers and directors on behalf of a class of investors who

purchased or otherwise acquired specific certificates that JP Morgan issued, underwrote or sold.

See Fort Worth Employees’ Ret. Fund v. J.P. Morgan Chase & Co., Case No. 600767/2009

(Sup. Ct. Nassau Co. 2009) (the “Fort Worth Class Action”). The case was later consolidated

and removed to the United States District Court for the Southern District of New York and




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assigned case number 1:09-cv-03701-JPO (S.D.N.Y.). The Fort Worth Class Action complaint

alleges claims under Sections 11, 12(a)(2) and 15 of the Securities Act.

          564.   Plaintiff ABP was included in the defined class in the Fort Worth Class Action

with respect to its investments in: JPMAC 2007-CH3 and JPMAC 2007-CH4.

          565.   Defendants JPMS, JPMM Acquisition, Bernard, Cole, Duzyk, King, McMichael

and Schioppo in this Complaint are also defendants in the Fort Worth Class Action, for the same

statutory causes of action asserted herein.

          B.     THE BEAR STEARNS CLASS ACTION

          566.   On August 20, 2008, a class action was filed against several Bear Stearns entities,

and certain present and former Bear Stearns officers and directors on behalf of a class of

investors who purchased or otherwise acquired specific certificates that Bear Stearns issued,

underwrote or sold. See New Jersey Carpenters Health Fund v. Bear Stearns Mort. Funding

Trust 2006-AR1, et al., Case No. 602426/08 (Sup. Ct. Nassau Co. 2008) (the “Bear Stearns Class

Action”). The Bear Stearns Class Action was later removed and consolidated into In re Bear

Stearns Mort. Pass-Through Certificates Litig., S.D.N.Y. Master File No. 08-cv-8093 (LTS)

(KNF). The Bear Stearns Class Action complaint alleges claims under Sections 11, 12(a)(2), and

15 of the Securities Act.

          567.   Plaintiff ABP was included in the defined class in the Bear Stearns Class Action

with respect to its investments in: BSABS 2007-HE3 and BSABS 2007-HE4.

          568.   Defendants Bear Stearns, BSABS, EMC, SAMI, Garniewski, Jurkowski,

Lutthans, Marano, Mayer, Molinaro, Nierenberg, Perkins, and Verschleiser in this Complaint are

also defendants in the Bear Stearns Class Action, for the same statutory causes of action asserted

herein.




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       C.         THE WAMU CLASS ACTION

       569.       On August 4, 2008, a class action was filed against several WaMu entities, and

certain present and former WaMu officers and directors on behalf of a class of investors who

purchased or otherwise acquired specific certificates that WaMu issued, underwrote or sold. See

New Orleans Employees’ Ret. Sys. v. WaMu Mort. Pass Through Certificates, Series 2006-AR1,

et al., Case No. 08-2-26210-3 (Super. Ct. King Co. 2008) (the “WaMu Class Action”). The

WaMu Class Action was later removed to the United States District Court for the Western

District of Washington, consolidated with Boilermakers Nat’l Annuity Trust Fund v WaMu Mort.

Pass Through Certificates et al., renamed In re Washington Mutual Mortgage-Backed Securities

Litigation, and assigned case number 2:09-cv-00037-MJP.

       570.       The WaMu Class Action complaint alleges Sections 11, 12(a)(2), and 15 of the

Securities Act.

       571.       Plaintiff ABP was included in the defined class in the WaMu Class Action with

respect to its investments in: WMALT 2007-OC2.

       572.       Defendants WaMu, WAAC, WaMu Capital, Beck, Novak, Green, Jurgens, and

Careaga in this Complaint are also defendants in the WaMu Class Action, for the same statutory

causes of action asserted herein.

                                                *****

       573.       Plaintiff ABP reasonably and justifiably relied on the class action tolling doctrines

of American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) and In re WorldCom Secs Litig.,

496 F.3d 245, 256 (2d Cir. 2007) to toll the statute of limitations on its 1933 Act claims. Under

American Pipe, all putative class members are treated as if they filed their own individual actions

until they either opt out or until a certification decision excludes them. American Pipe, 414 U.S.

at 255. As the Second Circuit stated in WorldCom “because Appellants were members of a class


                                                  223
asserted in a class action complaint, their limitations period was tolled under the doctrine of

American Pipe until such time as they ceased to be members of the asserted class.” WorldCom,

496 F.3d at 256; see also In re Morgan Stanley Mortg. Pass-Through Certificates Litig., No. 09

Civ. 2137 (LTS) (MHD), 2011 WL 4089580 (S.D.N.Y. Sept. 15, 2011) (rejecting defendants’

argument that American Pipe tolling does not apply when the original plaintiffs did not purchase

the same certificates as the new plaintiffs and therefore did not have standing to bring the new

plaintiffs’ claims).

          574.   Plaintiff ABP has chosen to file this separate action and to assert its Securities Act

claims, which have been tolled by the pendency of these Class Actions.

                                       CAUSES OF ACTION

                                   FIRST CAUSE OF ACTION
                            Violation of Section 11 of the Securities Act
                                     (Against All Defendants)

          575.   Plaintiff repeats and realleges each and every allegation above as if set forth fully

herein.

          576.   This Cause of Action is brought pursuant to Section 11 of the Securities Act

against all Defendants. This Cause of Action is predicated upon Defendants’ strict liability

and/or negligence for making material untrue statements and omissions in the Offering

Documents. For purposes of this Cause of Action, Plaintiff expressly excludes and disclaims any

allegation that could be construed as alleging fraud or intentional misconduct.

          577.   The Registration Statements for the Certificate offerings were materially

misleading, contained untrue statements of material fact, and omitted to state other facts

necessary to make the statements not misleading. Each Defendant issued and disseminated,

caused to be issued or disseminated, and/or participated in the issuance and dissemination of the

material statements and omissions that were contained in the Offering Documents.


                                                  224
        578.    Defendants JPM Acceptance, BSABS, SAMI, WAAC and LBSC, as the

depositors, were “issuers” within the meaning of the Securities Act, 15 U.S.C. § 77b(a)(4), and

are strictly liable to Plaintiff for making the misstatements and omissions in issuing the

Certificates.

        579.    The Individual Defendants were executive officers and representatives of the

respective companies responsible for the contents and dissemination of the Shelf Registration

Statements. Each of the Individual Defendants was a director of their respective companies at

the time the Shelf Registration Statement became effective as to each Certificate.              Each

Individual Defendant signed the relevant Registration Statements, or documents incorporated by

reference, in their capacities as officers or directors of their respective companies, and caused

and participated in the issuance of the Registration Statements. By reasons of the conduct

alleged herein, each of these Individual Defendants violated Section 11 of the Securities Act.

        580.    The Underwriter Defendants each acted as an underwriter in the sale of

Certificates issued by the Issuing Trusts, directly and indirectly participated in the distribution of

the Certificates, and directly and indirectly participated in drafting and disseminating the

Offering Documents for the Certificates.

        581.    Defendants JPMM Acquisition, EMC and WMMSC directly and indirectly

participated in the distribution of the Certificates, and directly and indirectly participated in

drafting and disseminating the Offering Documents for the Certificates, and therefore also acted

as underwriters in the sale of Certificates issued by the Issuing Trusts.

        582.    Defendants owed to Plaintiff the duty to make a reasonable and diligent

investigation of the statements contained in the Offering Documents at the time they became

effective to ensure that such statements were true and correct and that there was no omission of




                                                 225
material facts required to be stated in order to make the statements contained therein not

misleading.

        583.      Defendants failed to possess a reasonable basis for believing, and failed to make a

reasonable investigation to ensure, that statements contained in the Offering Documents were

true and/or that there was no omission of material facts necessary to make the statements

contained therein not misleading. The facts misstated or omitted were material to a reasonable

investor in the securities sold pursuant to the Offering Documents.

        584.      By reason of the conduct alleged herein, each of the Defendants violated Section

11 of the Securities Act, and are liable to Plaintiff.

        585.      Plaintiff acquired Certificates pursuant to the false and misleading Offering

Documents, including the Registration Statements.             At the time Plaintiff obtained the

Certificates, it did so without knowledge of the facts concerning the misstatements and omissions

alleged herein.

        586.      This action is brought within one year of the discovery of the materially untrue

statements and omissions in the Offering Documents, and brought within three years of the

effective date of the Offering Documents, by virtue of the timely filing of the Class Actions and

by the tolling of ABP’s claims afforded by such filings.

        587.      ABP has sustained damages measured by the difference between the price ABP

paid for the Certificates and (1) the value of the Certificates at the time this suit is brought, or

(2) the price at which ABP sold the Certificates in the market prior to the time suit is brought.

ABP’s Certificates lost substantial market value subsequent to and due to the materially untrue

statements of facts and omissions of material facts in the Offering Documents alleged herein.




                                                  226
        588.    By virtue of the foregoing, Plaintiff is entitled to damages, jointly and severally

from each of the Defendants, as set forth in Section 11 of the Securities Act.

                                   SECOND CAUSE OF ACTION
                           Violation of Section 12(a)(2) of the Securities Act
                          (Against the Issuing and Underwriter Defendants)

        589.    Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

        590.    This Cause of Action is brought pursuant to Section 12(a)(2) of the Securities Act

against the Issuing and Underwriter Defendants from whom Plaintiff acquired the Certificates.

For purposes of this Cause of Action, Plaintiff expressly excludes and disclaims any allegation

that could be construed as alleging fraud or intentional misconduct. This Cause of Action is

based solely on claims of strict liability and/or negligence under the Securities Act.

        591.    The Issuing and Underwriter Defendants offered, promoted, and/or sold the

Certificates to Plaintiff by means of the Offering Documents, including the Prospectuses and

Prospectus Supplements, which contained untrue statements of material facts, omitted to state

other facts necessary to make the statements made not misleading, and concealed and failed to

disclose material facts. The facts misstated and omitted were material to a reasonable investor

reviewing the Prospectuses.

        592.    Plaintiff purchased Certificates directly from the Issuing and Underwriter

Defendants in the Offerings, pursuant to the Offering Documents, including the Prospectuses and

Prospectus Supplements which contained untrue statements and omissions, as reflected in ¶ 85.

Defendants sold these Certificates for their own financial gain.

        593.    The Issuing and Underwriter Defendants owed to Plaintiff the duty to make a

reasonable and diligent investigation of the statements contained in the Offering Documents,

including the Prospectuses and Prospectus Supplements, to ensure that such statements were true


                                                  227
and that there was no omission to state a material fact required to be stated in order to make the

statements contained therein not misleading. The Issuing and Underwriter Defendants knew of,

or in the exercise of reasonable care should have known of, the misstatements and omissions

contained in the Offering Documents, including the Prospectuses and Prospectus Supplements as

set forth above.

       594.    Each of the Issuing and Underwriter Defendants actively participated in the

solicitation of ABP’s purchase of the Certificates, and did so in order to benefit themselves.

Such solicitation included assisting in preparing the Offering Documents, filing the Offering

Documents, and assisting in marketing the Certificates.

       595.    Plaintiff purchased or otherwise acquired Certificates pursuant to the defective

Offering Documents, including the Prospectuses and Prospectus Supplements. Plaintiff did not

know, or in the exercise of reasonable diligence could not have known, of the untruths and

omissions contained in the Offering Documents, including the Prospectuses and Prospectus

Supplements.

       596.    ABP acquired the Certificates in the primary market pursuant to the Offering

Documents, including the Prospectuses and Prospectus Supplements, except for BALTA 2004-6

and SACO 2005-5.

       597.    This action is brought within one year of the discovery of the materially untrue

statements and omissions in the Offering Documents, and brought within three years of the

effective date of the Offering Documents, by virtue of the timely filing of the Class Actions and

by the tolling of ABP’s claims afforded by such filings.

       598.    By reason of the conduct alleged herein, the Issuing and Underwriter Defendants

violated Section 12(a)(2) of the Securities Act.     As a direct and proximate result of such




                                               228
violations, Plaintiff sustained material damages in connection with its purchases of the

Certificates.     Plaintiff has the right to rescind and recover the consideration paid for its

Certificates, and hereby elects to rescind and tender its securities to the Issuing and Underwriter

Defendants, except as to any Certificates that Plaintiff has sold, as to which Plaintiff seeks

damages to the extent permitted by law.

                           THIRD CAUSE OF ACTION
                    Violation of Section 15 of the Securities Act
(Against JPMorgan Chase, JPMM Acquisition, EMC, WMMSC, JPMorgan Bank, and the
                              Individual Defendants)

        599.      Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein, except any allegations that the Defendants made any untrue statements and

omissions intentionally or recklessly. For the purposes of this Count, ABP expressly disclaims

any claim of fraud or intentional misconduct.

        600.      This Cause of Action is asserted against JPMorgan Chase (in its own capacity and

as successor-in-interest to BSCI), JPMM Acquisition, EMC, WMMSC, JPMorgan Bank (as

successor-in-interest to WaMu Bank) and the Individual Defendants under Section 15 of the

Securities Act.

        601.      Each of JPMorgan Chase (in its own capacity and as successor-in-interest to

BSCI), JPMM Acquisition, EMC, WMMSC, JPMorgan Bank (as successor-in-interest to WaMu

Bank) and the Individual Defendants by virtue of its control, ownership, offices, directorship,

and specific acts was, at the time of the wrongs alleged herein and as set forth herein, a

controlling person of the Issuing Defendants within the meaning of Section 15 of the Securities

Act.   JPMorgan Chase (in its own capacity and as successor-in-interest to BSCI), JPMM

Acquisition, EMC, WMMSC, JPMorgan Bank (as successor-in-interest to WaMu Bank) and the

Individual Defendants conducted and participated, directly and indirectly in the conduct of the



                                                229
Issuing Defendants’ business affairs, and had the power and influence and exercised the same to

cause the Issuing Defendants to engage in the acts described herein.

       602.    JPMorgan Chase (in its own capacity and as successor-in-interest to BSCI),

JPMM Acquisition, EMC, WMMSC, JPMorgan Bank (as successor-in-interest to WaMu Bank)

and the Individual Defendants’ control, ownership and position made them privy to and provided

them with knowledge of the material facts concealed from Plaintiff.

       603.    Because of their positions of authority and control as senior officers and directors,

the above-named Individual Defendants were able to, and in fact did, control the contents of the

applicable Registration Statements, including the related Prospectus Supplements, that each is

associated with as set forth above. These materials contained material misstatements of fact and

omitted facts necessary to make the facts stated therein not misleading.

       604.    Defendants JPMorgan Chase (in its own capacity and as successor-in-interest to

BSCI), JPMM Acquisition, EMC, WMMSC, JPMorgan Bank (as successor-in-interest to WaMu

Bank) and the Individual Defendants culpably participated in the violations of Sections 11 and

12(a)(2) set forth above with respect to the offering of the Certificates purchased by ABP, by

initiating these securitizations, purchasing the mortgage loans to be securitized, determining the

structure of the securitizations, selecting the entities to issue the Certificates, and selecting the

underwriters. In these roles, these Defendants knew and intended that the mortgage loans they

purchased would be sold in connection with the securitization process, and that the Certificates

would be issued by the relevant trusts.

       605.    This action is brought within one year of the discovery of the materially untrue

statements and omissions in the Offering Documents, and brought within three years of the




                                                230
effective date of the Offering Documents, by virtue of the timely filing of the Class Actions and

by the tolling of ABP’s claims afforded by such filings.

       606.    By virtue of the conduct alleged herein, JPMorgan Chase (in its own capacity and

as successor-in-interest to BSCI), JPMM Acquisition, EMC, WMMSC, JPMorgan Bank (as

successor-in-interest to WaMu Bank) and the Individual Defendants are liable for the aforesaid

wrongful conduct and are liable to Plaintiff for damages suffered as a result.

                                FOURTH CAUSE OF ACTION
                                 Negligent Misrepresentation
                                  (Against All Defendants)

       607.    Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein, except any allegations that the Defendants made any untrue statements and

omissions intentionally or recklessly. For the purposes of this Count, ABP expressly disclaims

any claim of fraud or intentional misconduct.

       608.    Defendants originated or acquired all of the underlying mortgage loans and

underwrote and sponsored the securitizations at issue. Based on due diligence they conducted on

the loan pools and the Originators, they had unique and special knowledge about underwriting

defects in the loans in the offerings.        Defendants were uniquely situated to evaluate the

economics of each securitization.

       609.    As the sponsors, underwriters and depositors of the Certificates, Defendants were

uniquely situated to explain the details, attributes, and conditions of each security. Defendants

made the misrepresentations described above to induce ABP to purchase the Certificates.

       610.    ABP did not possess the loan files for the mortgage loans underlying its

Certificates and thus it could not conduct a loan-level analysis of the underwriting quality or

servicing practices for the mortgage loans.




                                                 231
       611.    Defendants were aware that Plaintiff relied on Defendants’ unique and special

knowledge and experience and depended upon Defendants for accurate and truthful information

regarding the quality of the underlying mortgage loans and their underwriting when determining

whether to invest in the Certificates at issue in this action. Defendants also knew that the facts

regarding whether or not the Originators of the underlying loans complied with their stated

underwriting standards and appraisal methods were exclusively within Defendants’ knowledge

and control.

       612.    Over the course of almost two years, for 25 separate investments, ABP relied on

the Defendants’ unique and special knowledge regarding the quality of the underlying mortgage

loans and their underwriting when determining whether to invest in the Certificates. This

longstanding relationship, coupled with the Defendants’ unique and special knowledge about the

underlying loans, created a special relationship of trust, confidence, and dependence between the

Defendants and ABP.

       613.    At the time it made these misrepresentations, Defendants knew, or at a minimum

were negligent in not knowing, that these statements were false, misleading, and incorrect. Such

information was known to Defendants but not known to ABP, and Defendants knew that ABP

was acting in reliance on mistaken information.

       614.    Based on their expertise, superior knowledge, and relationship with ABP,

Defendants had a duty to provide ABP with complete, accurate, and timely information

regarding the underwriting standards and appraisal methods used. Defendants breached their

duty to provide such information to ABP.




                                               232
          615.   ABP reasonably relied on the information Defendants did provide which

Defendants undertook no attempt to correct. Without these material misrepresentations, ABP

would not have bought the Certificates.

          616.   ABP    has   suffered   substantial   damages    as   a   result   of   Defendants’

misrepresentations.

                                   FIFTH CAUSE OF ACTION
                                       Common Law Fraud
                       (Against the Corporate and Underwriter Defendants)

          617.   Plaintiff realleges each and every allegation contained above as if fully set forth

herein.

          618.   This claim is brought against the Corporate and Underwriter Defendants.

          619.   The Corporate and Underwriter Defendants promoted and sold the Certificates

purchased by Plaintiff pursuant to the defective Offering Documents. The Offering Documents

contained untrue statements of material facts, omitted to state other facts necessary to make the

statements made not misleading, and concealed and failed to disclose material facts.

          620.   Each of the Corporate and Underwriter Defendants knew their representations and

omissions were false and/or misleading at the time they were made. Each of the Corporate and

Underwriter Defendants made the misleading statements with an intent to defraud ABP.

          621.   Each of the Corporate and Underwriter Defendants knew that their representations

and omissions were false and/or misleading at the time they were made or at the very least,

recklessly made such representations and omissions without knowledge of their truth or falsity.

          622.   Each of the Corporate and Underwriter Defendants made the misleading

statements and omissions with an intent to defraud Plaintiff and to induce Plaintiff into

purchasing the Certificates. Furthermore, these statements related to these Defendants’ own acts

and omissions.


                                                 233
        623.    The Corporate and Underwriter Defendants knew or recklessly disregarded that

investors such as ABP were relying on their expertise, and they encouraged such reliance

through the Offering Documents and their public representations. These Defendants knew or

recklessly disregarded that investors such as ABP would rely upon their representations in

connection their decision to purchase the Certificates. These Defendants were in a position of

unique and superior knowledge regarding the true facts concerning the foregoing material

misrepresentations and omissions.

        624.    ABP reasonably, justifiably and foreseeably relied on the Corporate and

Underwriter Defendants’ false representations and misleading omissions.

        625.    It was only by making such representations that the Corporate and Underwriter

Defendants were able to induce ABP to buy the Certificates. ABP would not have purchased or

otherwise acquired the Certificates but for these Defendants’ fraudulent representations and

omissions about the quality of the Certificates.

        626.    Had ABP known the true facts regarding the loans underlying the Certificates,

including the Corporate Defendants’ and the Originators’ abandonment of their underwriting

practices, the Corporate Defendants’ and Originators’ improper appraisal methods, the

inaccuracy of the ratings assigned by the rating agencies, and the failure to convey to the Issuing

Trusts legal title to the underlying mortgages, Plaintiff would not have purchased the

Certificates.

        627.    As a result of the Corporate and Underwriter Defendants’ false and misleading

statements and omissions, Plaintiff suffered damages in connection with its purchase of the

Certificates.




                                                   234
          628.   Because the Corporate and Underwriter Defendants committed these acts and

omissions maliciously, wantonly and oppressively, and because the consequences of these acts

knowingly affected the general public, including but not limited to all persons with interests in

the RMBS, ABP is entitled to recover punitive damages.

          629.   In the alternative, ABP hereby demands rescission and makes any necessary

tender of Certificates.

                                  SIXTH CAUSE OF ACTION
                                    Fraudulent Inducement
                      (Against the Corporate and Underwriter Defendants)

          630.   Plaintiff realleges each and every allegation contained above as if fully set forth

herein.

          631.   This is a claim for fraudulent inducement against the Corporate and Underwriter

Defendants.

          632.   As alleged above, in the Offering Documents and in their public statements, the

Corporate and Underwriter Defendants made fraudulent and false statements of material fact,

and omitted material facts necessary in order to make their statements, in light of the

circumstances under which the statements were made, not misleading.

          633.   The Issuing and Underwriter Defendants knew at the time they sold and marketed

each of the Certificates that the foregoing statements were false, or, at the very least, made

recklessly, without any belief in the truth of the statements.

          634.   The Corporate and Underwriter Defendants made these materially misleading

statements and omissions for the purpose of inducing Plaintiff to purchase the Certificates.

Furthermore, these statements related to these Defendants’ own acts and omissions.

          635.   The Corporate and Underwriter Defendants knew or recklessly disregarded that

investors such as ABP were relying on their expertise, and they encouraged such reliance


                                                 235
through the Offering Documents and their public representations. These Defendants knew or

recklessly disregarded that investors such as ABP would rely upon their representations in

connection with their decision to purchase the Certificates. These Defendants were in a position

of unique and superior knowledge regarding the true facts concerning the foregoing material

misrepresentations and omissions.

        636.    It was only by making such representations that the Corporate and Underwriter

Defendants were able to induce Plaintiff to buy the Certificates. Plaintiff would not have

purchased or otherwise acquired the Certificates but for the Corporate and Underwriter

Defendants’ fraudulent representations and omissions about the quality of the Certificates.

        637.    Plaintiff justifiably, reasonably and foreseeably relied on the Corporate

Defendants’ representations and false statements regarding the quality of the Certificates.

        638.    By virtue of the Corporate and Underwriter Defendants’ false and misleading

statements and omissions, as alleged herein, Plaintiff has suffered substantial damages and is

also entitled to rescission or rescissory damages.

                              SEVENTH CAUSE OF ACTION
                                 Aiding & Abetting Fraud
                   (Against JPMorgan Chase and the JPMorgan Defendants)

        639.    Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

        640.    This is a claim against JPMorgan Chase and the JPMorgan Defendants for aiding

and abetting the fraudulent and reckless misrepresentations by each other. Each of JPMorgan

Chase and the JPMorgan Defendants aided and abetted the fraud committed by JPMorgan Chase

and all of the other JPMorgan Defendants.

        641.    As alleged in detail above, JPMorgan Chase and the JPMorgan Defendants

knowingly promoted and sold Certificates to ABP pursuant to materially misleading Offering


                                                236
Documents, thereby damaging ABP. Each of the above-named Defendants knew of the fraud

perpetrated on ABP by the other Defendants.           Indeed, each of these Defendants directed,

supervised and otherwise knew of the abandonment of underwriting practices and the utilization

of improper appraisal methods; the inaccuracy of the ratings assigned by the rating agencies; and

the failure to convey to the Issuing Trusts legal title to the underlying mortgages.

        642.    JPMorgan Chase and the JPMorgan Defendants provided each other with

substantial assistance in perpetrating the fraud by participating in the violation of mortgage loan

underwriting and appraisal standards; making false public statements about mortgage loan

underwriting and appraisal standards; providing false information about the mortgage loans

underlying the Certificates to the rating agencies; providing false information for use in the

Offering Documents; and/or participating in the failure to properly endorse and deliver the

mortgage notes and security documents to the Issuing Trusts.

        643.    It was foreseeable to JPMorgan Chase and each JPMorgan Defendant at the time

he, she or it actively assisted in the commission of the fraud that ABP would be harmed as a

result of their assistance.

        644.    As a direct and natural result of the fraud committed by JPMorgan Chase and the

JPMorgan Defendants, and the knowing and active participation by these Defendants, Plaintiff

has suffered substantial damages.

                                 EIGHTH CAUSE OF ACTION
                                    Aiding & Abetting Fraud
                              (Against the Bear Stearns Defendants)

        645.    Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.




                                                237
       646.    This is a claim against the Bear Stearns Defendants for aiding and abetting the

fraudulent and reckless misrepresentations by each other. Each of the Bear Stearns Defendants

aided and abetted the fraud committed by all of the other Bear Stearns Defendants.

       647.    As alleged in detail above, the Bear Stearns Defendants knowingly promoted and

sold Certificates to ABP pursuant to materially misleading Offering Documents, thereby

damaging ABP. Each of the Bear Stearns Defendants knew of the fraud perpetrated on ABP by

the other Bear Stearns Defendants. Indeed, each of these Defendants directed, supervised and

otherwise knew of the abandonment of underwriting practices and the utilization of improper

appraisal methods; the inaccuracy of the ratings assigned by the rating agencies; and the failure

to convey to the Issuing Trusts legal title to the underlying mortgages.

       648.    The Bear Stearns Defendants provided each other with substantial assistance in

perpetrating the fraud by participating in the violation of mortgage loan underwriting and

appraisal standards; making false public statements about mortgage loan underwriting and

appraisal standards; providing false information about the mortgage loans underlying the

Certificates to the rating agencies; providing false information for use in the Offering

Documents; and/or participating in the failure to properly endorse and deliver the mortgage notes

and security documents to the Issuing Trusts.

       649.    It was foreseeable to each Bear Stearns Defendant at the time he, she or it actively

assisted in the commission of the fraud that ABP would be harmed as a result of their assistance.

       650.    As a direct and natural result of the fraud committed by the Bear Stearns

Defendants, and the knowing and active participation by these Defendants, Plaintiff has suffered

substantial damages.




                                                238
                           NINTH CAUSE OF ACTION
                             Aiding & Abetting Fraud
  (Against the WaMu Defendants, JPMorgan Bank, LBSC, Banc of America, and Credit
                                     Suisse)

        651.    Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

        652.    This is a claim against the WaMu Defendants, JPMorgan Bank (as successor in

liability to WaMu Bank), LBSC, Banc of America, and Credit Suisse for aiding and abetting the

fraudulent and reckless misrepresentations by each other. Each of the WaMu Defendants,

WaMu Bank, LBSC, Banc of America, and Credit Suisse aided and abetted the fraud committed

by the WaMu Defendants, WaMu Bank, LBSC, Banc of America, and Credit Suisse.

        653.    As alleged in detail above, the WaMu Defendants, WaMu Bank, LBSC, Banc of

America, and Credit Suisse knowingly promoted and sold Certificates to ABP pursuant to

materially misleading Offering Documents, thereby damaging ABP. Each of the above-named

Defendants knew of the fraud perpetrated on ABP by the other Defendants. Indeed, each of

these Defendants directed, supervised and otherwise knew of the abandonment of underwriting

practices and the utilization of improper appraisal methods; the inaccuracy of the ratings

assigned by the rating agencies; and the failure to convey to the Issuing Trusts legal title to the

underlying mortgages.

        654.    The WaMu Defendants, WaMu Bank, LBSC, Banc of America, and Credit Suisse

provided each other with substantial assistance in perpetrating the fraud by participating in the

violation of mortgage loan underwriting and appraisal standards; making false public statements

about mortgage loan underwriting and appraisal standards; providing false information about the

mortgage loans underlying the Certificates to the rating agencies; providing false information for




                                               239
use in the Offering Documents; and/or participating in the failure to properly endorse and deliver

the mortgage notes and security documents to the Issuing Trusts.

        655.    It was foreseeable to each of the WaMu Defendants, WaMu Bank, LBSC, Banc of

America, and Credit Suisse at the time he, she or it actively assisted in the commission of the

fraud that ABP would be harmed as a result of their assistance.

        656.    As a direct and natural result of the fraud committed by the WaMu Defendants,

WaMu Bank, LBSC, Banc of America, and Credit Suisse, and the knowing and active

participation by these Defendants, Plaintiff has suffered substantial damages.

                                TENTH CAUSE OF ACTION
                               Successor and Vicarious Liability
                    (Against JPMorgan Chase, JPMS, and JPMorgan Bank)

        657.    Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

        658.    Defendant JPMorgan Chase is the successor to BSCI, pursuant to the Merger.

JPMorgan Chase is liable for BSCI’s wrongdoing, in its entirety, under common law, because

BSCI merged and consolidated with JPMorgan Chase, because JPMorgan Chase has expressly or

impliedly assumed BSCI’s tort liabilities, and because JPMorgan Chase is a mere continuation of

BSCI. This action is thus brought against JPMorgan Chase both in its own capacity and as

successor to BSCI.

        659.    Defendant JPMS is the successor to Bear Stearns, pursuant to the Merger. JPMS

is liable for Bear Stearns’s wrongdoing, in its entirety, under common law, because Bear Stearns

merged and consolidated with JPMS, because JPMS has expressly or impliedly assumed Bear

Stearns’s tort liabilities, and because JPMS is a mere continuation of Bear Stearns. This action is

thus brought against JPMS both in its own capacity and as successor to Bear Stearns.




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       660.     Defendant JPMorgan Bank succeeded to WaMu Bank’s liabilities pursuant to the

PAA. JPMorgan Bank is liable for WaMu Bank’s wrongdoing, in its entirety, under common

law, because WaMu Bank merged and consolidated with JPMorgan Bank, because JPMorgan

Bank has expressly or impliedly assumed WaMu Bank’s tort liabilities, and because JPMorgan

Bank is a mere continuation of WaMu Bank. This action is thus brought against JPMorgan Bank

both in its own capacity and as successor to WaMu Bank.

                                    PRAYER FOR RELIEF

       WHEREFORE, ABP prays for relief and judgment, as follows:

       An award in favor of ABP against Defendants, jointly and severally, for all damages

sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, but including

at a minimum:

       (a)      ABP’s monetary losses, including loss of market value and loss of
                principal and interest payments;

       (b)      Rescission and recovery of the consideration paid for the
                Certificates, with interest thereon;

       (c)      ABP’s costs and disbursements in this suit, including reasonable
                attorneys’ fees and expert fees;

       (d)      Prejudgment interest at the maximum legal rate; and

       (e)      Such other and further relief as the Court deems just and proper.




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